Mixed Signals from Treasury-Reported Capital Flows

January 18, 2011

Foreigners bought a net $93.9 billion of US. securities in November, the most since August and 67.1% greater than the October total.  November’s purchases were also greater than the monthly averages of $78.3 billion bought during the last twelve months and $48.3 billion over the 12 months to November 2009.  Treasury securities accounted for roughly two-thirds of all U.S. securities bought by foreigners in November.  Net of U.S. purchases of foreign securities, there was a net inflow in November of $85.1 billion, almost three times larger than October’s $28.9 billion and larger than September’s inflow of $75.5 billion.  Using a broader definition of long-term flows that includes swaps, the inflow in November was $64.6 billion, still comfortably bigger than that month’s goods and services trade deficit of $38.3 billion.

The distribution of foreign buying of Treasuries continues to give troubling evidence that China and Opec are diversifying away from U.S. federal debt.  Chinese holdings of Treasuries fell by $11.2 billion in the latest month and were $33.4 billion lower than a year earlier.  Opec holding fell by $3.5 billion in November and were just $7.8 billion greater than in November 2009.  The biggest regional source of demand for Treasuries is currently the U.K., whose holdings rose by more than $30 billion in November and $356.3 billion during the past twelve reported months. 

Another worrisome sign for the dollar was that the broadest measure of net capital inflows reported by the Treasury, which includes short-term instruments, showed a net inflow in November of $39.0 billion, barely enough to cover the trade deficit, and its average net inflow over the past twelve months of $24.8 billion per month was not as big as the trade imbalance.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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