Net Foreign Purchases of Long-Term Treasuries Jumped to $105.2 Billion

August 17, 2009

The monthly Treasury Department release of U.S. capital flow data saw foreign purchases of U.S. long-term securities leap to $123.6 billion in June from $7.9 billion in May, $22.2 billion per month in January-May, $34.4 billion per month  in 2008, $83.8 billion per month in 2007 and $95.3 billion per month in 2006.  Almost the entire increase involved a surge in foreign buying of U.S. Treasury bonds and notes.  Net of U.S. purchases of foreign securities, a $90.7 billion long-term capital inflow was generated in June, 3.4 times greater than the goods and services trade deficit that month.  The long-term net capital inflow including stock swaps was $71.3 billion, a $108.2 billion favorable swing from May’s $36.9 billion net outflow.  Transactions in short-term securities generated an outflow, including $11.3 billion net of foreign sales of U.S. Treasury bills.  Therefore, the broadest definition of net securities flows produced a net outflow of $31.2 billion during June.  Five of the six months in the first half of 2009 saw an outflow on this comprehensive measure, which still omits direct investment flows, and the average net outflow in 1H09 amounted to $30.3 billion compared to a net inflow in 2008 of $53.8 billion.  The monthly goods and services trade deficit averaged $28.8 billion in 1H09, down from $60.9 billion in 1H08 and $58.0 billion in full-2008. 

Improvement in the U.S. balance of payments stemmed mostly from temporary factors, the domestic recession and a flight to the safety of U.S. government securities.  The U.S. current account imbalance is bottoming out at a larger size than after previous corrections.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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