US: Treasury International Capital

Mon Dec 17 15:00:00 CST 2018

Actual Previous
Foreign Demand for Long-Term U.S. Securities $31.3B $30.8B

Foreign accounts, at minus $6.5 billion, were actually net sellers of long-term U.S. securities in October yet were offset by heavy selling of foreign securities by U.S. accounts, at $37.8 billion. Together they make for a $31.3 billion net inflow during the month.

Private foreign accounts have been heavy sellers of U.S. equities all year and they picked up the pace to a net $26.0 billion in October which was a very bad month for the stock market. Private foreign accounts were heavy buyers of U.S. Treasuries at a net $44.4 billion but were nearly offset by $42.6 billion of selling by official foreign accounts. Foreign accounts in total were big buyers of government agency bonds, at a net $11.6 billion, and light buyers of corporate bonds at $2.4 billion.

Selling by U.S. accounts was centered in foreign bonds at $32.6 with selling of foreign equities totaling $5.2 billion.

Country data show a modest $12.5 billion reduction in Chinese holdings of U.S. Treasuries at $1.139 trillion with Japanese holdings down $9.5 billion to $1.028 trillion.

Against the increasing size of the nation's trade and government deficits, large net inflows of securities help provide an offset, but the offset is best when centered in foreign buying of U.S. securities, less so in U.S. selling of foreign securities.

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.