The Treasury Department released its monthly report on cross-border financial flows for December. Here is a quick recap-

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $2.1 billion. Foreign holdings of Treasury bills increased $25.3 billion.

Net foreign purchases of long-term U.S. securities were $22.4 billion. Of this, net purchases by private foreign investors were $25.2 billion, and net purchases by foreign official institutions were negative $2.8 billion.

Here are the trends that emerged from today’s report:

  • Both private and official investors are dumping government agency bonds at an accelerating pace. Private and official holdings for these bonds decreased a net $37.5 billion for the month of December.
  • Corporate bonds, on the other hand, were quite popular, as $41 billion in net purchases was recorded in December. This comes after a net decrease of $37.8 billion for the three months preceding December.
  • Official holdings for treasury bonds and notes were up $3.9 billion, after a net decrease of $26.2 billion in November. It’s nice to see that number reverse, as somebody has to buy our mountain of debt that we have been accumulating over the past few months.

After a flight to quality that had completely overcome the markets in October, investors are exercising more caution as to where their or their government’s money is put to work.

The monthly net TIC flows were:

Monthly net treasury international capital flows were $74 billion. Of this, net foreign private flows were $65.7 billion, and net foreign official flows were $8.2 billion.

In the last year, net purchases of US securities stood at $412.5 billion, less than the $1 trillion plateau we have been accustomed to. This number is likely to fall even further as the first two months of the new year have not been accounted for.

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