US: Treasury International Capital

Fri Oct 16 15:00:00 CDT 2015

Actual Previous
Foreign Demand for Long-Term U.S. Securities $20.4B $7.7B

Foreign accounts didn't show much demand for U.S. long-term securities in August where the net inflow came in at a moderate $20.4 billion. Foreign accounts were buyers of government agency bonds, at a net $9.7 billion, and buyers of corporate & other bonds, at $9.4 billion. But they were big sellers of Treasuries, at minus $35 billion in the month, and were once again sellers of equities at minus $6.0 billion. If it wasn't for net buying of foreign bonds by U.S. accounts, the inflow would have turned into an outflow in the month.

Looking at country data, China remains the biggest holder of U.S. Treasuries at $1.27 trillion, up slightly in the month, with Japan second at $1.20 trillion and Caribbean Banking Centers, a favorite of hedge funds, still holding third at $329 billion.

The U.S. needs investment inflows to offset high government and trade deficits but at the same time, greater inflow into the U.S. starves capital from other parts of the world.

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.