US: Treasury International Capital

January 18, 2017 03:00 CST

Actual Previous Revised
Foreign Demand for Long-Term U.S. Securities $30.8B $9.4B $9.3B

Chinese accounts reduced their holdings of long-term U.S. Treasuries substantially in November, down $66.4 billion in the month to $1.05 trillion. Japan accounts also reduced their holdings, down $23.3 billion and still ahead of China at $1.11 trillion. Third place still belongs to Ireland, way back at $275.2 billion followed by the Cayman Islands at $260.6 billion.

Net buying of Treasuries was otherwise flat and foreign accounts were big buyers of government agency bonds during the month. Agency buying together with selling of foreign bonds by U.S. accounts made for a respectable net inflow of $30.8 billion in long-term securities in November. Aside from agencies, there was little net change in monthly flows for U.S. securities.

With trade wars the talk, Chinese selling of U.S. Treasuries and stepping back at auctions could become factors for the outlook. This set of data, the Treasury International Capital report, is the place to keep watch for developments.

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.