Money Still Streams Into the U.S.
Net capital flows into the U.S. were $56.8 billion in November, largely reflecting investments in short-term securities. Net capital flows into long-term securities fell $21.7 billion, well below forecasts of a $15.0 billion decline. The difference probably reflects movement into U.S. Treasury bills, where yields plunged to zero percent.
Whereas there might normally be concern about the decline in flows to long-term securities, it is rational in this case to look more broadly at the overall figure and worry somewhat less about the ability of the U.S. to attract capital. The bottom line is that the U.S. continues to attract capital. That said, it is of course important to remain watchful of capital flows to the U.S., because the U.S. needs globs of it to finance its battle against the financial and economic crises.
Looking more specifically at the details of capital flows into long-term securities, where net flows were down $21.7 billion, net holdings of Treasury notes and bonds fell $22.9 billion, the first decline since August 2007. China's holdings, which many are concerned about, increased $29 billion in November, reflecting a swap out of agencies into Treasuries. The most important point here is that China continues to place money in the U.S., although question marks remain for 2009.
Net flows into U.S. agency securities fell $21.18 billion following $50.2 billion decline in October. The tally for agencies will likely show another decline in December and possibly January, judging by the more timely weekly data on foreign central bank holdings of agencies that are released by the Fed every Thursday. The data also show that central banks continue to be net buyers of Treasuries (net buyer; of long- and short-term maturities combined).
Net foreign purchases of corporate bonds sunk $16.1 billion, the fifth consecutive monthly decline and a factor behind the increase in credit spreads. Corporate equities faired surprisingly well, with net inflows of $4.1 billion following a decrease of $6.2 billion in October. |
