Each month, the U.S. Treasury Department issues their Treasury International Capital report, which contains detailed information on international demand for U.S. securities. Normally, the report is not a headline grabber, and may only get a passing reference (if that) by most media outlets. But lately, some investors are paying more attention to this report, since the value of the U.S. dollar has come under increasing scrutiny. Since March 9th, which was the same day that equities bottomed, the dollar has fallen by -15% (on a trade-weighted basis), while the S&P 500 Index has rallied +62%. Since some countries (particularly China and Japan) have purchased very large quantities of U.S. Treasury debt, they aren’t exactly thrilled that their dollar holdings are falling in value, and have been very vocal lately about their desire to create some sort of new, global currency as an alternative to the greenback.
But for all the rhetoric, it seems that demand for U.S. debt has remained fairly steady. On a 12-month rolling average basis, foreign entities purchased $337 billion of U.S. Treasury notes and bonds in the year through August. As shown on the chart below, net purchases have held in a range of roughly $200 - $400 billion for the past several years, and foreigners haven’t been net sellers since earlier this decade. Part of the issue is that despite public statements, some countries have such large reserves that they don’t have realistic alternatives to Treasuries right now.
We’ll continue to monitor this data to see if these countries begin to back up their words with actions going forward, which could have very negative implications for the buck. But for now, it seems to be just a lot of posturing.
