Net U.S. Portfolio Investment Inflows Remained Supportive in December

February 16, 2010

According to data collected by the U.S. Treasury Department, net capital inflows in December surpassed the goods and services trade deficit under all three measures of varying inclusiveness in December, and net capital inflows were larger than projected for the second month in a row.  Flows in the table below are expressed as monthly averages.  The surprisingly large capital inflows are consistent with the euro’s decline from $1.5005 at end-November to $1.4318 at end-December and foreshadow the dollar’s continuing appreciation in the first eighth of 2010.  Net capital inflows under the narrowest definition (definition #1) include only long-term private and official portfolio transactions.  Definition #2 also counts only long-term capital movements but includes some transactions like stock swaps that are excluded from the first definition.  The third and final definition captures net purchases of short-term U.S. securities and other custody liabilities as well as changes in bank-reported liabilities.

Bln of USD Def’n #1 Def’n #2 Def’n #3 Trade Gap
December 63.3 50.9 60.9 -40.2
Nov-Dec 94.9 82.5 45.3 -38.3
2009 36.8 20.2 -23.2 -31.7
2008 41.5 25.0 55.4 -58.0
2007 64.7 45.1 51.0 -58.5


Foreigners purchased $128.9 billion and $82.2 billion net of U.S. long-term securities in November and December respectively.  This activity compared favorably with average per month purchases of $53.3 billion in 2009, $34.3 billion in 2008, and 83.4 billion in 2007.  Net buying of long-term Treasuries rose from $16.5 billion per month in 2007 to $26.3 billion per month in 2008 and $44.9 billion per month last year.  As investors turned away from riskier assets, the demand for agency and corporate bonds diminished, in contrast.  Net foreign buying of U.S. equities slowed from $16.3 billion per month in 2007 to $3.5 billion per month in 2008 but recovered to $12.7 billion per month in 2009.

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


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