Foreign Demand for U.S. Assets Remained Strong in June

Foreign demand for U.S. assets was much stronger than expected in June. Net long-term TIC flows were +$120.9 billion, twice the consensus $62.5 billion expectation, and only slightly below May's record $126 billion level. Long-term assets includes U.S. Treasury Notes and Bonds, corporate debt, agency debt, and stocks. Total flows (long and short-term) were worse than expected, falling to $58.8 billion from a revised higher $107.3 billion the prior month. Short-term flows add in Treasury Bills and other debt maturing in less than a year. By category, foreign official purchases rose substantially, growing almost $54B in June versus only $11B in May. Private purchases slowed notably, falling to $96B in June versus $152B in May.

Corporate bond holdings fell to a third of the demand from the prior month as private investors pulled back purchases. Private demand for equities also fell, but more slowly, only by a third. Demand for agency debt grew in both the private and public sectors to a total of almost $40 billion in June.

Even though China and Japan sold Treasuries in June, total demand from foreign official sources such as central banks, doubled from the prior month. The reduction in Chinese holdings indicates they have begun actively diversifying their holdings of foreign exchange reserve assets away from safe, but low-yielding U.S. government debt. China still holds $405 billion in U.S. Treasury debt while Japan has an ongoing investment of $612 billion, and together they remain the first and second largest holder of U.S. Treasury debt outside the U.S. Brazil increased its holdings by $12 billion last month to $94 billion. Oil exporters were also small net buyers.

This data indicates that the U.S. continues to have no problem funding its large trade and current account deficits with foreign money. Ten year Treasuries are currently unchanged on the day, after trading higher earlier.