Capital Sought Refuge of United States as European Conditions Grew More Precarious

May 17, 2010

The Treasury Department’s so-called monthly TIC data revealed a surge in net foreign purchases of long-term U.S. securities to $157.7 billion in March from $51.4 billion in February.  By comparison, such averaged $53.3 billion per month last year and $34.3 billion in 2008. Treasury notes and bonds comprised $108.4 billion or 68.7% of the March total.  That was a bigger sum than purchases in earlier risk-averse months like October 2008 ($32.9 billion), February 2009 ($21.7 billion) and April 2008 ($76.6 billion).  In addition, net foreign holding s of U.S. Treasury bills advanced $23.9 billion in March. The U.S. goods and services trade deficit widened to $40.4 billion in March and $39.2 billion per month in the latest four reported months from $33.6 billion in the four months to November 2009.  This deterioration was easily absorbed by the flood of safety-seeking capital.

March saw decent demand for other U.S. securities.   Foreign buying of U.S. corporate bonds amounted to  a net $16.1 billion that month in contrast to net sales in the first two months of the quarter.  $11.2 billion of net buying of U.S. equities was slightly above the pace in January-February, and $21.9 billion of net buying of Agency bonds accounted for all of the net demand in the quarter.

The Treasury TIC data release compiles three different aggregates of net capital inflows.  The two narrowest shot up in March, but the broadest, which included short-term as well as long-term flows, was pretty steady.  Long-term security transactions produced a $140.5 billion inflow after a $47.1 billion inflow in February.  A separate inflow that also reflects equity swaps led to a $120.4 billion net inflow, 3.5 times bigger than February’s inflow.  However, under a third definition that includes many short-term securities and other custody accounts, the net inflow only rose to $10.5 billion from $9.7 billion in February and an outflow of $11.0 billion in January.  During the first quarter, the dollar appreciated 6.5% against sterling, 6.0% relative to the euro, 1.9% versus the Swissy, but 0.4% against the yen.  With the second quarter now half completed, the dollar has advanced by an additional 9.4% against the euro, 7.6% against the Swiss franc, and 5.3% against sterling.  The dollar so far this quarter has also risen 4.4% against the Aussie dollar and 1.9% against the Canadian currency, but it has softened 1.1% against the yen.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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