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Economy in Brief

Foreign Investors Slow Net Buying of Securities from US Investors in December
by Carol Stone February 15, 2006

Foreign investors sharply reduced their net purchases of securities from US investors in December, according to the US Treasury's monthly Treasury International Capital ("TIC") data reported this morning. Foreigners bought $74.16 billion in US securities from US resident investors, down from $105.70 billion in November. At the same time, they sold $17.56 billion in foreign securities to US investors, making their overall net transactions with US investors $56.60 billion, down from $91.6 billion in November and the smallest amount since May's $56.57 billion.

The TIC data, carried in Haver's USINT database, constitute a sizable body of information about interest in US markets from investors in many countries around the world. In the past, Japan has been the prime region absorbing US bonds and stocks. In the second graph, we show this with the share of Japanese gross purchases of US securities. In the late 1980s and early 1990s, Japan's purchase took about 35 - 40% of total foreign purchases. In more recent years, Japanese investors have reduced their buying. Not surprisingly, China's purchases have picked up. Additional monthly data are available on foreign holdings of Treasury securities and these show that Japan's portfolio has flattened. China's has trended consistently higher, but its Treasury ownership is still a mere fraction of Japan's.

In interpreting these data, it's important to remember that they mark the first transaction between a US investor and a non-US investor. That foreign party may be an intermediary between the American and the final foreign owner. Thus, the UK and Caribbean centers are large purchasers of US securities. But they may not be large "owners". For instance, UK gross purchases of US Treasuries were 9 times as much as those of Japanese investors in 2005, but their holdings of Treasuries at the end of the year were only 34% as much as Japan's. China's holdings are just a little bit larger than the UK's, but they are growing consistently. See the third graph.

Monthly Averages 
Net Foreign Purchases of Securities from US Investors (Billions US$) Dec 2005 Nov 2005 Oct 2005
2005 2004 2003 2002
Total 56.6 91.6 105.6 75.9 63.6 55.3 47.9
Total Domestic Securities 74.2 105.7 108.8 87.4 76.4 60.0 45.6
Treasuries 18.5 54.5 29.2 29.2 29.3 22.0 10.0
Federal Agencies (mostly "GSEs") 9.8 9.1 34.9 18.9 18.9 13.0 16.3
US Corporate Bonds 37.3 37.3 36.1 32.6 25.8 22.1 15.2
US Corporate Stocks 8.7 4.8 8.0 6.6 2.4 2.9 4.2
Foreign Bonds -3.7 2.2 2.8 -1.4 -5.7 2.7 2.4
Foreign Stocks -13.8 -16.4 -6.0 -10.1 -7.1 -7.4 -0.1
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