U.S. Long-Term Capital Inflows Shot Up in November

January 19, 2010

The Treasury November TIC report (Treasury International Capital) revealed $118.3 billion of net foreign purchases of long-term Treasury securities, up from $37.2 billion per month in August-October, $26.3 billion per month last year, and $16.5 billion per month in 2007.  The largest incremental gain came from Britain.  This surge in demand for Treasuries was the main factor behind a $126.8 billion net long-term portfolio capital inflow.  Net long-term securities transactions had generated monthly inflows of $19.3 billion in October, $32.3 billion in August-October, $41.5 billion in 2008 and $64.7 billion in 2007, by comparison.

The heavy buying of Treasuries in November was associated with a reduced 10-year yield, which dropped 23 basis points over the course of the month but not a strengthening dollar.  Between end-October and end-November, the dollar fell 4.1% against the yen, 2.0% against the euro and Swiss franc, 2.5% against the Canadian dollar and 1.7% relative to the Australian dollar.  The disconnection between the dollar’s performance and net long-term capital inflows is not very surprising.  Over the years, the TIC data have acquired a notoriously poor reputation for telling a story that dovetails with currency market developments.  And the November report in fact also revealed substantial short-term capital outflows.  A broad aggregate that combines net long-term securities transactions with swaps and several short-term transactions involving securities and bank-reported liabilities netted an inflow in November of only $26.6 billion.  Now that, too, was an improvement of $51.1 billion on a $24.5 billion outflow in October, but it was not enormously smaller than the monthly average inflows of $45.2 billion in August-October, $55.6 billion in 2008 or $51.0 billion in 2007.

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

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