US: Treasury International Capital

Wed Sep 16 15:00:00 CDT 2015

Actual Previous
Foreign Demand for Long-Term U.S. Securities $7.7B $103.1B

Foreign accounts were not buying long-term U.S. securities in July, a month that shows a minimal net inflow of $7.7 billion vs June's outsized net inflow of $103.1 billion. Foreign accounts have been big buyers of Treasuries but not in July, which shows a net outflow of $28.7 billion. Other components show a sizable gain for corporate bonds, at $18.7 billion, and gains of $10.4 billion for government agencies and a rare gain for equities of $3.7 billion that interrupts a long trend of outflows. Holding down the inflow was a marginal $3.7 billion of net buying of foreign long-term securities by U.S. accounts which were buying foreign bonds in the month.

Chinese accounts were big sellers of U.S. Treasuries in July, taking down their holdings by $30 billion to $1.24 trillion from $1.27 trillion. Japan held steady at $1.20 trillion with Caribbean Banking Centers, a favorite of hedge funds, holding third for a fourth month at $325 billion. Watch this data next month for the August report and early indications whether Chinese accounts, due to the month's big selling in equities, were forced to sell U.S. Treasuries.

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.