Foreign Demand for US Assets Improved in September, But Not Enough to Fund Current Account Deficit

Total net monthly TIC flows remained in negative territory in September at -$14.7B versus the revised -$150.7 from August. Even though the net selling experienced in August was revised down to -$150.7B, from the previously reported decline of -$163B, last month (August) retains the record for monthly foreign selling of total U.S. assets. Of the total monthly long-and short-term flows, private investors sold -$27.8B, while official purchasers, such as foreign central banks, bought a net +$13.1B of US assets, causing the net total foreign monthly sales of -$14.7B.

The long-term net securities TIC flows (durations longer than one year), which are more indicative of long-term investment, rose $26.4 billion, after falling a revised -$70.6B of net sales last month. Today's TIC data suggests that foreigners are no longer interested in funding the United State's current account and trade deficits, which are running at over $60B a month, or approx $2.1B a day in foreign funding needs. The dollar index is now down .275 on the day, to 75.79, as the dollar remains near record lows.

In September, foreigners bought the largest amount of Treasuries in six months, as the Fed rate cut gave a boost to Treasury prices and interest rates fell. Net Treasury purchases rose $26.3B in September after falling $2.8B in August. Stock indices also had a good rally in September. International holdings of U.S equities rose a net $2.5B in September after falling $40.7B in August. Demand for Agency debt and MBS also rose, growing from $8.4B in demand in August to $11.5B net purchases in September.

Private investors of long-term assests bought a net $11.6B of Treasuries, $2.3B of agencies, and $10.5B of corporate bonds, plus a net $2.5B of equities. Official purchasers bought a net $14.6 Billion of Treasuries, $9.2B of agencies, $4.6B of corporate bonds and essentially no equities. These foreign purchases of U.S. assets were partially offset by U.S. investors purchases of foreign securities which reduced net demand by $29B. U.S. investors bought a net $19.7B of foreign bonds and $9.2B of foreign equities in September.

The UK increased their holdings of U.S. Treasury debt by $22.4B last month (often Middle Eastern investors), followed by Brazil at $2.7B and oil exporters at $2.4B. The largest sellers of Treasuries in September were the Caribbean at -$4.9B (usually hedge funds), France and China each at -$3.5B, Japan at -$3.4B and Korea at -$3.2B. Most of the increase was in Treasury Bonds as opposed to Treasury Bills. Japan remains the largest foreign holder of U.S. government debt at $582B followed by China at $397B and the UK at $266B. OPEC countries weigh in at $125B and Brazil at $109B.