Must-know releases that will impact US debt securities this week

Part 2

How will Treasury International Capital affect US debt securities?

What is the Treasury International Capital (or TIC) reporting system?

The Treasury International Capital (or TIC) reporting system collects data for the United States on cross-border portfolio investment flows and positions between U.S. and foreign residents. This system provides monthly data on transactions and holdings of long-term securities in excess of one year. Although the system has its limitations and doesn’t capture all the data below certain threshold limits, and it faces institutional constraints, it gives bond investors an estimate for demand for U.S. securities abroad.

Part 2Enlarge Graph

The total in November of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a monthly net TIC outflow of $16.6 billion. Of this, net foreign private outflows were $30.5 billion, and net foreign official inflows were $13.9 billion. Foreign residents’ holdings of long-term U.S. securities declined in November. Net sales of long-term securities were $11.4 billion. Net sales by private foreign investors were $21.5 billion, while net purchases by foreign official institutions were $10.2 billion.

A net inflow in the TIC implies that private foreign investors’ and foreign official institutions’ net purchases of long-term U.S. securities were greater than those of their U.S. counterparts in non-U.S. long-term securities, and a net outflow implies that U.S. investors and institutions purchased more long-term securities abroad than their foreign counterparts purchased long-term U.S. securities.

Part of these flows include fixed income securities and therefore an impact on U.S. bond markets. An increase in the purchase of U.S. debt securities by international investors will imply, other things remaining constant, an increase in the prices of U.S. bonds and lower yields. The converse is also true—a decrease in the demand for U.S. debt securities will imply, other factors remaining constant, lower bond prices and higher yields.

To read about another indicator due for release this week and expected to impact debt markets, move on to Part 3 of this series.

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