USD: US Trade Imbalances and Capital Flow Tools (Part 2)
When asked on X about the 30% Withholding Tax the US already charges on US dividends and interest income McNair replied :
- “There's a statutory 30% US withholding tax (WHT) on interest and dividends but since 1984, most foreign interest income is exempt.”
- “The portfolio interest exemption means foreigners pay zero tax on interest from Treasuries, agency bonds, most corporate debt, and even many derivatives. On top of that, statute 892 exempts foreign central banks, sovereign wealth funds, and public pension funds entirely - no tax on interest or dividends.”
- “Then the tax treaties add another layer of…"generosity". The US-China treaty, for ex, reduces the WHT on interest to 10% but this is often redundant since the portfolio interest exemption already eliminates tax on most interest income.”
- “So, while the 30% rate exists in theory, most foreign capital pays little to nothing on US investment income. That’s the loophole I believe the Trump administration is preparing to close.”
- And we’ve already seen the first glimpse of this. Buried in a White House memo (section k) from February they explicitly suggest terminating certain tax treaties - starting with China - to restore reciprocal balance and reduce incentives for persistent surplus countries to park excess savings in US assets.”
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NEW ZEALAND: Westpac Nudges Up Q1 Inflation Forecast, But In Line With RBNZ
The local bank has nudged up its Q1 inflation forecasts after this morning's food price data. Q1 data prints this Thursday.
Westpac: "With continued strength in food prices, we’ve nudged our forecast for March quarter CPI up to 0.8% (up from 0.7% previously). That was mainly due to today’s stronger than expected food prices data.
That revision leaves our updated forecast in line with the RBNZ’s February MPS forecast. We also have the same forecasts for non-tradables (+0.9%) and tradable inflation (+0.7%).
The annual inflation rate is set to rise to 2.4%, up from 2.2% at the end of last year, but still comfortably within the RBNZ’s target band. Core inflation is also expected to remain well contained."
JGBS AUCTION: Poll: 20-Year JGB Auction
*JAPAN 20Y GOVT BOND AUCTION MAY HAVE 100.40 LOWEST PRICE:POLL– BLOOMBERG
JGBS: Cash Bonds Cheaper Ahead Of 20Y Supply
In Tokyo morning trade, JGB futures weakened, -40 compared to settlement levels.
- Today, the local calendar will be empty apart from 20-year supply.
- Cash US tsys are 1-3bps richer, with a flattening bias, in today's Asia-Pac session after yesterday’s solid gains.
- After the market close, Bostic spoke: "Right now range of possible outcomes has multiplied. Inflation is still much higher than target. Not in a position to boldly move in any direction, need more clarity." (via RTRS/BBG)
- “The Bank of Japan will probably leave aside raising interest rates for now due to uncertainties stemming from US tariff measures that could deal a blow to Japan’s economy, according to a former executive director, Kenzo Yamamoto. The BoJ wants to see how US-Japan trade talks proceed before making a move, and the current environment is not suitable for promoting further yen appreciation with monetary policy.” (per BBG)
- Cash JGBs are flat to 3bps cheaper across benchmarks, with the futures-linked 7-year leading the sell-off. The benchmark 20-year yield is 0.5bp lower at 2.427% ahead of today’s supply.
- Swaps have twist-flattened, with rates 3bps higher to 8bps lower. Swap spreads are mixed.
