US: Treasury International Capital

Mon Aug 17 15:00:00 CDT 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $103.1B $93.0B $93.0B

Strength in the dollar may be hurting exports but it's a definite plus for foreign investment. Foreign accounts bought a net $87.2 billion of U.S. long-term securities in June while U.S. accounts sold a net $15.9 billion of long-term foreign securities. Putting these together, inflow into the U.S. totaled a very strong $103.1 billion. This compares with a very strong inflow of $93.0 billion in May.

Foreign accounts were major buyers of U.S. Treasuries in June, at a net $69.9 billion. They were also big buyers of U.S. government agency bonds, at a net $25.6 billion, and also U.S. corporate bonds at $13.8 billion. But foreign accounts have been selling U.S. equities all year and the pace picked up in June to a net $22.0 billion.

On the U.S. side, accounts were big sellers of foreign bonds, at a net $29.3 billion, but were buyers of foreign equities, at $13.4 billion.

Country data for U.S. Treasury holders show China once again at top, unchanged at $1.27 trillion, and Japan a more distant second at $1.20 trillion vs $1.22 trillion in May. Caribbean banking centers, the favorite of hedge funds, is third at $319 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.