US: Treasury International Capital

Fri Jan 16 15:00:00 CST 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $33.5B $-1.4B $-1.4B

Foreign accounts were once again buyers of long-term US securities in November, at a net $33.5 billion vs an unrevised and rare outflow in October of $1.4 billion.

Foreign buying was centered in government agency bonds, at an unusually large net of $33.3 billion in the month. Buying of corporate bonds was also very strong at a net $25.0 billion. Foreign accounts were moderate buyers of US equities, at $5.8 billion that, however, follows very heavy selling of US equities in October when the net outflow was $27.3 billion.

Subtracting from the inflow was heavy buying of foreign long-term securities by US accounts which totaled a net $25.7 billion. Buying by US accounts was centered entirely in foreign equities, at a net $29.3 billion to offset modest net selling of foreign bonds.

Turning back to foreign accounts, these were net sellers of Treasuries in the month at $4.8 billion for a rare outflow for this component.

Looking at holders of US Treasuries, Japanese accounts are now nearly the largest, at $1.24 trillion vs October's $1.22 trillion. Accounts in Mainland China decreased their holdings fractionally to $1.25 trillion. Belgium accounts, which are the third largest holder, scaled back holdings to $335.7 billion from $348.1 billion.

These Treasury data track the flows of financial instruments into and out of the United States. Instruments tracked include Treasury securities, agency securities, corporate bonds, and corporate equities.

TIC data have been issued for the past 30 years, but only recently, due to an enormous rise in foreign participation in our markets, have they grabbed the attention of the international financial markets. Although methodologically limited, TIC offers a measure of foreign demand for our debt and assets. Bonds and the dollar are most sensitive to the data, therefore bond and foreign exchange markets are more likely to react to this report than the equity market. Strong inflows (demand for U.S. securities) are needed to keep downward pressure on interest rates. Strong inflows also underpin the value of the dollar since foreigners must purchase dollars in order to buy our securities. A strong dollar helps to maintain stability in all U.S. financial markets. Since foreign ownership of U.S. equities is comparatively small, the equity market is less concerned about this report.