US: Treasury International Capital

Tue Nov 17 15:00:00 CST 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $33.6B $20.4B $20.8B

Foreign demand for US long-term securities picked up, to $33.6 billion in September vs a revised $20.8 billion in August. US Treasuries were in strong demand in the month, a month of market turbulence, as were US corporate bonds. Foreign accounts were also buyers of government agencies but they were, however, big sellers of equities at a net $27.7 billion for the third outflow in four months.

A look at country holdings of US Treasuries shows China down a sharp $12.5 billion to $1.26 trillion in September, which was one month after the devaluation of the yuan. Japan is the next biggest holder at $1.18 trillion and was also down sharply in the month. Caribbean Banking Centers, a favorite of hedge funds, continues to hold third at $322 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.