US: Treasury International Capital

Wed Apr 15 15:00:00 CDT 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $9.8B $-27.2B $-27.4B

China is no longer the largest holder of US Treasuries. Japan, for the first time since August 2008, is back in front but just fractionally, at $1,224.4 billion vs $1,223.7 billion for China. There was also a shake up in the three and four slots with Caribbean Banking Centers, a favorite spot for hedge funds, at $351 billion and with Belgium moving down to fourth at $345 billion.

The headline reading for the TICS report shows a small $9.8 billion net cross-border inflow of long-term securities in February. This follows a revised $27.4 billion outflow in January. Though the two prior months had a combined net inflow of $72.7 billion, these are generally soft readings that have yet to show any lift tied to the strength of the dollar.

Details for February show respectable foreign demand for corporate bonds and government agency bonds, only modest demand for US equities, and outright net selling in long-term Treasuries which is usually a very popular area for foreign buyers.

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.