3rd UPDATE: Dec Foreign Acquisition Of Long-Term US Secs Down
>>>Sorry Ido - I didn't believe you so I had to find separate confirmation. What else I can't believe is that there is little market reaction. So the biggest holders - Japan and China - have stopped buying. See my article about Congress imposing tariffs on both. Looks like a shoot-out at the OK corral. Who is holding all the aces here??? If China starts dumping because the US imposes tariffs, kiss real estate here goodbye. If real estate here tanks, then the Saudis stop buying treasuries and or run for the exits. Sell those houses - buy that crude.<<<
DOW JONES NEWSWIRES
February 15, 2007 11:59 a.m.
(Updates with analysts' comments).
By Campion Walsh
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--Net foreign acquisition of long-maturity U.S. securities plunged to $2.5 billion in December, down 95% from $52.2 billion in November and the lowest monthly amount since July 2000, according to a Treasury Department report released Thursday.
The decline reflected both foreign private investors' sharp scaleback in their buying of a range of U.S. securities and U.S. investors making record net purchases of foreign stocks and bonds.
"We got hit by a perfect storm in December," said Jay Bryson, global economist for Wachovia Corp. While following months are likely to show more favorable capital inflows, the latest report could reflect longer-term difficulty financing the current account deficit, Bryson said.
"With interest-rate differentials narrowing, foreigners probably aren't going to be purchasing as many U.S. securities going forward," he said, referring to potentially more atractive interest rates outside the U.S. "With a very large current account deficit, I think it means further downward pressure on the dollar as we go forward."
The monthly Treasury report highlights cross-border acquisitions of securities with maturities of more than one year, including non-market flows such as stock swaps and principal repayment on asset-backed securities. Other capital flow gauges in the report also fell steeply.
The report's most comprehensive category, "monthly net TIC flows," includes non-market flows, short-term securities and changes in banks' dollar holdings.
This measure showed a net foreign capital outflow of $11.0 billion in December, a sharp reversal from the $70.5 billion net monthly TIC inflow of the previous month. The outflow in December was the first negative reading for this gauge since a $21.1 billion outflow in June 2005.
Despite the sharp December downturn for the report's various gauges of net capital flow to the U.S., full-year readings increased. In 2006 net foreign acquisition of long-term securities totaled $730.4 billion, 4.5% higher than the previous year. Meanwhile, the broadest gauge, monthly net TIC inflows, totaled $827.9 billion, up 24% from the previous year.
"The data is enormously volatile from month to month, and the best thing is to look at it over a much longer time horizon," said a senior Treasury official who requested anonymity. "The U.S. Treasury market is the deepest, most liquid and most vibrant in the world, and it continues to attract investment."
Currency market analysts acknowlege the monthly data can be volatile, but they say the data can still be significant. "If the dollar continues to sell off sharply over the next couple of days, people will look to that data as a reason and it will become self-reinforcing," said David Solin, technical analyst and partner at Foreign Exchange Analytics.
Financial market analysts consider the monthly data from the Treasury Department to be a significant but imprecise measure of the ease with which the U.S. can finance its trade deficit. By comparison the U.S. had a $61.2 billion trade deficit during December, according to a report earlier this week by the Commerce Department.
Within the long-term securities category, foreign net purchases of U.S. Treasury notes and bonds was $10.6 billion in December, compared with net buys of $34.1 billion in November.
Private foreign investors bought a net $4.6 billion in Treasury notes and bonds in December, after making net purchases of $32.5 billion the previous month. Meanwhile, foreign official institutions such as central banks bought a net $6.1 billion of these Treasurys, compared with net purchases of $1.0 billion the previous month.
Net foreign purchases of debt issued by U.S. government-sponsored agencies such as Fannie Mae (FNM) and Freddie Mac (FRE) totaled $28.0 billion in December, up from $15.8 billion in net purchases in November.
For U.S. equities, net foreign sales totaled $11.6 billion in December, a reversal from $7.0 billion in net purchases the previous month.
For corporate bonds, net foreign purchases were $36.0 billion in December, down from $65.4 billion the previous month.
Net foreign equities and bonds purchased by U.S. residents - which affects the overall net inflow figure - was $47.4 billion in December, a record high that was up from November's $37.4 billion. The increase was driven by a record-high $28.5 billion in net foreign bonds purchased by U.S. residents.
Total foreign holdings of Treasury bills, notes and bonds was $2.224 trillion at the end of December, up from $2.218 trillion the month before. But foreign official holdings of Treasury bills, notes and bonds fell to $1.318 trillion in December from $1.321 trillion the month before.
Japan remained the largest holder of U.S. Treasury securities, with its holdings rising $6.9 billion in December to $644.3 billion. China remained the second-largest holder of U.S. Treasurys, as its stake rose $3.1 billion to $349.6 billion. The U.K. remained in third place with holdings up $16.5 billion to $239.1 billion.
Treasury holdings by "oil exporters" - a category comprising mainly members of the Organization of Petroleum Exporting Countries - rose $3.8 billion to $100.9 billion. Treasury holdings in Caribbean banking centers, which are associated with investment funds, dropped $15.1 billion in December to $68.0 billion. |
