The Treasury Department has released its monthly data on capital flows to the U.S.
The Treasury International Capital System, or TICS, report showed foreign investors have continued to buy U.S. government debt since the end of the second quarter of 2009 but foreigners have migrated to longer duration assets, matching the return to reserve accumulation.
Keeping in mind the Federal Reserve ended its Treasury buying program in late 2009, so far, investment in long-term Treasuries has remained strong, and it increased markedly in November 2009.
The ratio of total Treasuries held by foreign investors came down as the U.S. savings rate rose.
The fall in the current account deficit, because of the collapse of imports, means the U.S. requires less foreign investment, even as the financing needs of the government have climbed.
The U.S. Treasury's monthly TICS capital flow report shows net portfolio investment into long-term securities surged to $126.8 billion in November from a revised $19.3 billion in October (initially $20.7 billion), on consensus expectations of $25.0 billion.
The total TICS number improved to $26.6 billion in November from a downwardly revised negative $25.4 billion in October (initially negative $13.9 billion).
So, the TICS report highlights three important developments:
• Foreign investors appear to be shifting their preference for long-date over short-dated U.S. Treasuries.
• Foreign investment into U.S. equities remains stable.
• U.S. investment in foreign securities is decreasing.
Bottom line: U.S. Treasuries maintain their preferred reserve allocation status, notwithstanding all the negative noise, especially that’s going on in the United States.
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