Net purchases of securities by foreign investors in US markets picked up slightly in September, reaching $63.4 billion, after a dip to $59.9 billion in August. Foreign investor participation in US capital markets is thus running modestly ahead of its record pace in 2003. These data appear in the US Treasury's month Treasury International Capital ("TIC") data and were released yesterday for September. They are contained in Haver's USINT database in the section "US International Investment Tables", shown by security type and country. They cover purchases and sales of securities with maturities longer than one year. Thus, several forms of financing such as short-term paper, trade credit and bank loans, are not included.

Press reports this morning express concern that these foreign investments are not keeping up with the ever widening current account deficit. However, the graph shown here suggests that through the second quarter -- the latest available US current account data -- these capital flows are in fact keeping up. And they have a substantial 88% correlation with the current account over the past 15 years. Through August, however, the US trade deficit appears to be widening for the quarter even as these securities purchases have diminished somewhat from the second quarter. It thus remains to be seen whether the close correlation in these patterns will be maintained; the recent fall in the dollar may suggest a reduced attraction of US markets for foreign investors.

The September data show sharply reduced net purchases of federal agency securities, but increased buying of Treasuries. Further, net buying of corporate bonds picked up sharply. Press reports also express concern that Japanese participation turned negative in September. Indeed, Japanese investors were net sellers of $3.5 billion worth of US securities. However, investors in the UK, Bermuda and Hong Kong, among others, more than made up for the Japanese pullback.