Net financial inflows edged higher in May. However, the pace of net purchases of long-term U.S. securities slowed. Surprisingly, foreigners were net sellers of short-term securities.
Total Inflows Rise, Long-Term Inflows Plunge
- Total net financial inflows rose slightly in May to $17.5 billion from $13.0 billion in April. Net long-term inflows fell to $35.4 billion from $81.5 billion as net foreign purchases of Treasury bonds and notes fell significantly. Demand for government agency bonds increased, however.
- Foreigners were net sellers of corporate bonds, which helps to explain the widening in corporate bond spreads in May.
Foreign Demand for Short-term Securities Also Fell
- Foreigners were net sellers of short-term U.S. securities, which is surprising given the turmoil that arose in global markets in May as the European debt crisis unfolded. However, while foreign official investors were net sellers, private investors were net purchasers.
- The decline in demand for short- and long-term securities was overcome by an increase in banks’ dollar-denominated liabilities.
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