Foreign Purchases of Treasuries Up to $28.6 Billion in August

The Treasury said foreign intake of long-term US financial assets expanded in August, but compared to pre-crisis levels analysts said purchases were tepid.

Net foreign purchases of long-term securities were in line with forecasts at $28.6 billion in August, compared with $15.3 billion in the prior month.

“This is all fine and good, but the fact remains that foreign appetite for U.S. securities is much less than it was pre-crunch,” said TD strategist Eric Lascelles, who noted the monthly average in 2007 was $64 billion. “This presents clear risks for USD and Treasury yields,” he added. 

The TIC flows report said purchases from both the private sector and official sector were down slightly. Private foreign investors increased their holdings by $21.3 billion, while net purchases by foreign official institutions were $11.6 billion. Meantime, US residents purchased a net $4.3 billion of long-term foreign securities.

Looking at Treasuries alone, demand remains steady with the private sector increasing its holdings by $10.7 billion and the official sector adding $13.2 billion. 

“Still, annualizing the official sector results in just $158B per year, which is a drop in the bucket when contrasted against the big bond issuance needs of the U.S. government,” said Lascelles. The desire for agency debt “remains quite slim,” he added, as the official sector continues to divest its holdings.

Monthly net TIC flows, a figure that includes non-market flows, short-term securities, and changes in banks' dollar holdings, reported a new inflow $10.2 billion in the month, compared with the massive outflow of $107.7 billion in July.

The biggest holder of Treasuries, China, divested $3.4 billion in the month, trimming its holdings to $797.1 billion in August. Meanwhile, France was the biggest purchaser in the month, adding $10.4 billion. Japan, the UK, and Hong Kong also increased their holdings.

Other Details:

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $18.5 billion. Foreign holdings of Treasury bills decreased $2.5 billion.

Banks' own net dollar-denominated liabilities to foreign residents increased $15.7 billion.

Monthly net TIC flows were $10.2 billion. Of this, net foreign private flows were $14.9 billion, and net foreign official flows were negative $4.7 billion.

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