The U.S. Treasury released data Aug. 15 tracking international capital flows for the U.S. through June. The flows out of U.S. securities was shocking. Especially troubling was the amount of U.S. Treasuries sold by foreigners. Their outflows exceeded those from U.S. bond funds. Of course, some of the outflows from the bond funds could be attributable to foreign investors. Nevertheless, the data suggest foreign investors might have been more spooked by the Fed's tapering talk in May and June than domestic investors.
As the U.S. federal deficits have swelled, the U.S. government has become more dependent on the kindness of strangers. Apparently, those strangers are losing their interest in helping us out with our debts. Consider the following Treasury International Capital data:
(1) Total securities: During June, foreigners sold $934.1 billion (annualized) in U.S. Treasury bills, notes, and bonds; agency bonds; corporate bonds; and U.S. equities. Over the past three months, the annualized net capital outflows from these securities was $462.8 billion.
(2) Treasury notes and bonds: During June, the net outflows from U.S. Treasury notes and bonds was $489.2 billion (annualized). The annualized rate out of these securities over the past three months was $271.1 billion.
(3) U.S. equities: Over the past three months through June, foreigners have also been net sellers of U.S. equities totaling $97.1 billion at an annual rate.
(4) Agency and corporate bonds: Foreigners haven't been selling U.S. agency and corporate bonds, but they haven't been buying them either.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.