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Inflows into US Assists are Driven by Bank Liabilities

David Becker
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The U.S. TIC report revealed a $137 billion April inflow thanks to a huge $189 billion inflow in net bank liabilities. Domestic net investment revealed a $14 billion outflow after a $9 billion inflow in March. Outflows of $13.6 billion in Treasuries and $8.5 billion in Corporates, partly offset by a $10.2 billion inflow in Equities. There was a large $120 billion net private inflow alongside a small $17 billion inflow from official accounts.

The rebound in investor sentiment over the last couple of years has been most evident in the net inflow into equities. April revealed a $10 billion inflow, partly reversing five straight months of outflows. There has been volatility since early 2013 due to market turmoil and eurozone concerns, and the last few quarters have been less than promising. The $1.1 billion drop in July 2011 was the first outflow since June of 2010 when financial markets hiccupped on European sovereign debt concerns and “double-dip” risk.

The thaw in risk aversion since early-2009 has also been evident in net selling of “safe-haven” short-term securities. There has been a fairly consistent monthly selling since November of 2010, and there was an April outflow of $17 billion to mark only the third outflow in six months. This extends a span of volatility since last July as there have been sixteen monthly inflows in that span. These securities hit a peak inflow of $93 billion in October of 2008, followed by net selling in 10 out of 11 months ending in February 2010.

After seven straight years of new record highs through 2006, foreign net buying of long-term U.S. assets failed to set a new record in 2007, as the widening U.S. current account deficit turned the corner following a 2006 peak. This was followed by a more pressing contraction in 2008 and 2009. The annual U.S. capital surpluses and current account deficits have stabilized since then, and we’ve seen a similar pattern of erratic swings in net foreign inflows since then as well. We expect a narrowing in net foreign inflows in 2014 alongside a smaller drop-back in the U.S. current account gap.

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