US: Treasury International Capital

Thu Jul 16 15:00:00 CDT 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $93.0B $53.9B $54.4B

Strength in the dollar may be hurting exports but it's a definite plus for foreign investment. The net inflow of long-term securities jumped $93.0 billion in May reflecting strong foreign interest in U.S. Treasuries and U.S. corporate bonds. Foreign accounts were also sizable buyers of government agency bonds but, as they have been all year, were sellers of U.S. equities.

U.S. accounts were net sellers of foreign long-term securities in the month, driving up the headline inflow by $15.2 billion. U.S. accounts were net buyers of foreign equities but were big sellers of foreign bonds.

Country data for U.S. Treasury holders show China once again at top, at $1.27 trillion, and Japan in second at $1.22 trillion. Caribbean banking centers, the favorite of hedge funds, is third at $312 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.