US: Treasury International Capital

Mon Mar 16 15:00:00 CDT 2015

Actual Previous
Foreign Demand for Long-Term U.S. Securities $-27.2B $35.4B

Foreign accounts were big sellers of US long-term securities, at least in January. Net long-term flow was minus $27.2 billion in the month, reflecting $39.8 billion of net selling by foreign accounts which was offset in part by $12.6 billion of net selling of foreign long-term securities by US accounts.

Foreign selling in January was heavily concentrated in US Treasuries with agency bonds and corporate bonds showing foreign demand. Foreign demand for US equities was flat. But given the strength in the US dollar during February and so far in March, foreign demand for US securities, including Treasuries, is likely to show much more strength in the reports ahead.

Looking at foreign holders of US Treasuries, China, where accounts sold Treasuries in the month, remained the biggest holder but just fractionally ahead of Japan where accounts were buyers. Rounded data come out even, at $1.239 trillion for both.

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.