Foreign investors fled from US assets in August, selling a record $163 billion in total net flows, based on the Treasury's TIC data. Long-term asset flows also fell a record $69.3 billion in August. Long-term assets last longer than a year, and are a better indicator of true demand to hold US dollar denominated assets. These figures compare with total revised purchases of $94.3B in July (down $9B from original estimate) and a relatively low $19.5B of net long-term purchases of stocks and debt instruments in July. As recently as last May, long-term TIC flows reached a net monthly purchase of $132B of US assets by foreigners.
Rapidly rising economic uncertainty tied to the health of the US economy and reliability of debt credit ratings following rapid revaluation of subprime issuance has caused foreign investors to retreat from US assets as they increase caution. Even the flight to quality demand has dried up this month as the dollar continued to weaken, further reducing expected returns. In addition, US investors stepped up their demand for foreign assets, purchasing $34.5 billion in August versus only $5.5 billion.
Demand for U.S. stocks plummeted as foreign investors sold $40.6 billion in August after acquiring $21 billion in July, even as the US stock averages rose over 1% during the month. A twenty five basis point drop in ten year Treasury yields between the two months kept demand for long-term Treasury debt muted at a net-$2.6B in August. Official sales of $30B in Treasuries offset $27B in private purchases during the month. Treasury bill demand totaled $21B in total foreign purchases. Corporate bonds saw demand drop as well as foreigners were net sellers of $1.2B. Agency debt and mortgage demand held steady at $9.6B in August versus $8.7B in July.
Demand declined among both private and public investors, but the larger exodus was by private funds which plummeted from purchases of $56B in July to sales of $142B in August.
Treasury holdings declined in August for two of the largest foreign investors. Japan's position declined by almost $25B while China's fell almost $9B. The UK and the Caribbean both bought around $33B in August. OPEC holdings were essentially unchanged.
The huge deficit of demand for US assets in August is a major concern for the US economy as the recycling of dollars from the trade deficit disappeared in August. Normally, net foreign demand for US assets has offset the approx $60B monthly trade deficit. Luckily the trade deficit has been shrinking slightly this year, as export demand picks up, but is still running at close to 6% of US GDP. Net foreign selling of US assets will put further pressure on the dollar to adjust lower in value. The broad based dollar index, which measures the dollar versus a basket of major trade currencies, has fallen steadily for the last seven month, reaching a new 30 year low in October, as it becomes more expensive and difficult to finance the US's excess spending.
Graph for 20 year history of Total TIC Flows to see how remarkable this month's figure really is historically.
Rapidly rising economic uncertainty tied to the health of the US economy and reliability of debt credit ratings following rapid revaluation of subprime issuance has caused foreign investors to retreat from US assets as they increase caution. Even the flight to quality demand has dried up this month as the dollar continued to weaken, further reducing expected returns. In addition, US investors stepped up their demand for foreign assets, purchasing $34.5 billion in August versus only $5.5 billion.
Demand for U.S. stocks plummeted as foreign investors sold $40.6 billion in August after acquiring $21 billion in July, even as the US stock averages rose over 1% during the month. A twenty five basis point drop in ten year Treasury yields between the two months kept demand for long-term Treasury debt muted at a net-$2.6B in August. Official sales of $30B in Treasuries offset $27B in private purchases during the month. Treasury bill demand totaled $21B in total foreign purchases. Corporate bonds saw demand drop as well as foreigners were net sellers of $1.2B. Agency debt and mortgage demand held steady at $9.6B in August versus $8.7B in July.
Demand declined among both private and public investors, but the larger exodus was by private funds which plummeted from purchases of $56B in July to sales of $142B in August.
Treasury holdings declined in August for two of the largest foreign investors. Japan's position declined by almost $25B while China's fell almost $9B. The UK and the Caribbean both bought around $33B in August. OPEC holdings were essentially unchanged.
The huge deficit of demand for US assets in August is a major concern for the US economy as the recycling of dollars from the trade deficit disappeared in August. Normally, net foreign demand for US assets has offset the approx $60B monthly trade deficit. Luckily the trade deficit has been shrinking slightly this year, as export demand picks up, but is still running at close to 6% of US GDP. Net foreign selling of US assets will put further pressure on the dollar to adjust lower in value. The broad based dollar index, which measures the dollar versus a basket of major trade currencies, has fallen steadily for the last seven month, reaching a new 30 year low in October, as it becomes more expensive and difficult to finance the US's excess spending.
Graph for 20 year history of Total TIC Flows to see how remarkable this month's figure really is historically.
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