Foreign Purchases of U.S. Securities Smaller in August, but Still Large by Historical Standards

The US Treasury today published its array of monthly data on foreign investors' purchases and sales of "long-term" US securities (having maturity greater than one year) for August. Known as the "TIC" data for Treasury International Capital", this extensive collection of information on foreign participation in US capital markets is contained in Haver's USINT database in the section "US International Investment Tables", shown by security type and country. In August, net foreign purchases of securities traded in US markets totaled $53 billion, down from July's $73.4 billion, but well above the $42.2 billion of August 2002.

Indeed, as seen in the graph, the volume of foreign purchases in US markets has climbed fairly persistently over the last 10 years, so that the monthly amounts in 2003 are largely without precedent. The graph also shows that this pattern is somewhat a mirror image of the US current account deficit, which has climbed fairly persistently over the last 10 years. Obviously, these security purchases do not account for all of the financing, but they have grown along with that deficit.

At the same time, these financial transactions are quite varied in both magnitude and mix even from month to month. As the table below shows, the reduction in total net purchases from July to August was largest in Treasury securities, no doubt part of the bond market sell-off that occurred during the summer. By contrast, the recovery in the stock market is apparent in the huge turnaround in foreign purchases of US stocks, from a net liquidation in July to the largest net increase since late 2001. Thus, market forces are interrelated with these capital flows and may be just as important a determinant of their size and direction as the economic reverberations from the current account.