US: Treasury International Capital

Tue Oct 18 15:00:00 CDT 2016

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $48.3B $103.9B $102.8B

Foreign accounts continued to increase their holdings of U.S. long-term securities, by $30.4 billion in August amid another month of heavy buying of agency bonds and corporate bonds that offset another heavy month of official selling of U.S. Treasuries. US residents brought money home in the month, decreasing their holdings of long-term foreign securities by $18.0 billion and selling entirely foreign bonds which offset small net buying in foreign stocks. The foreign and domestic inflows together make, when rounded, for a net $48.3 billion inflow, a healthy total that is dwarfed however by a revised $102.8 billion inflow in August. Turning back to Treasuries, holdings by accounts in Mainland China fell a sharp $33.7 billion to $1.185 trillion. Japanese holdings, which are the second largest, fell $10.6 billion to $1.144 billion. Ireland is the third largest holder, at $266 billion and just ahead of the Cayman Islands which is a hedge-fund favorite. Comparatively high interest rates together with an appreciating currency are making U.S. securities attractive abroad.

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.