US: Treasury International Capital

Tue Dec 15 15:00:00 CST 2015

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $-16.6B $33.6B $33.6B

Foreign demand for U.S. long-term securities fell in October as foreign residents sold a net $50.2 billion. This was offset in part by net selling of $16.6 billion in foreign long-term securities by U.S. residents, making for a monthly outflow of $16.6 billion. This is the first outflow since January. Foreign residents were big sellers of both Treasuries and equities in October but were buyers of corporate bonds and also government agency bonds.

Looking at country data for U.S. Treasuries, China's holdings held steady at $1.26 trillion while Japan's holdings sank sharply, down more than $25 billion to $1.15 trillion. Caribbean banking centers, a favorite of hedge funds, remain the third largest holder, steady at $322 billion.

Foreign selling of U.S. Treasuries, specifically Japanese selling, could be tied to the October FOMC which warned markets that a rate hike at this month's FOMC is on the table.

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.