Treasury TIC Data: Record Purchases of US Securities; Country Mix Highlights Rising China, Diminishing Japan

May's "TIC" data from the US Treasury show a substantial increase in net purchases of US securities by foreign investors to a record $163.5 billion. These purchases amounted to $97.4 billion in April and $107.7 billion in May a year ago. This report, published Tuesday morning, also includes an increase in US purchases of foreign securities to $37.3 billion, the third largest monthly amount ever (the two larger were in December 2006 and March 2007). The effects of other financial capital flows, such as the return of capital on asset-backed securities, and other adjustments produced the total "Net TIC Flows" of $105.9 billion. This is the largest since February 2006, but a number of individual months prior to that have been larger; the absolute record is $227.4 billion in January 2006. These amounts basically reflect portfolio investment flows in and out of US markets.

This month's record securities purchases were concentrated in corporate instruments; both bonds and stocks experienced record net foreign buying. Bonds saw $72.6 billion, compared with the previous month's $33.5 billion and the prior record of $62.4 billion last November. Net buying of US equities was $41.8 billion, an unprecedented amount some 53% larger than April's $27.4 billion and 51% more than the previous record $27.7 billion in February 2000, just before the end of the tech boom.

Net purchases of Treasury securities, which were for many years the basic building block of foreign portfolios, are still sizable at $21.6 billion in May, but noticeably less than the $28 and $29 billion averages for 2005 and 2004, respectively. Buying of GSEs ("Agencies" in the table below) has remained within its recent high range as FNMA and FHLMC have regained some favor with investors; they bought $27.5 billion worth in May, less than April's record $36.1 billion, but much more than the $18-$19 billion monthly averages in 2004 and 2005.

The changes in portfolio mix seen here -- fewer Treasuries and more Agencies and Corporates -- are reflected in data for individual countries. China was a net seller of Treasuries in April ($941 million) and May ($3.22 billion) while increasing its holdings of Agencies and Corporates. In the last six months, Chinese investors have purchased a total of $76.4 billion of US securities. The single biggest investor country represented in the TIC data is the UK; this most probably reflects the London markets' role as an international financial center, so the ultimate investors could come from almost anywhere. This group purchased a stunning $92.7 billion of US securities in May and sold a record $30.8 billion in foreign securities to US investors. They actually increased their purchases of Treasuries in May, buying $33.3 billion after liquidating $10.7 billion in April. The largest increase in their holdings came in corporate bonds, with net purchases of $45.2 billion; the previous high was $33.5 billion last November.

Finally, as we see in the table, Japanese investors are much less active in US markets now. In May, they purchased just $2.0 billion in US securities and so far in 2007, they have been net sellers of $3.0 billion worth. Their peak activity came in 2004, when they bought just over $20 billion worth a month, about two-thirds of that in Treasuries. As the Japanese economy has emerged from its stagnation, these investors have been more interested in their home market than in ours.