The narrative surrounding global interest rates has captivate markets, suggesting a shift in capital flows away from the US. However, recent data contradicts this storyline.
Global Interest Rates and Their Influence
The belief has been that US economic challenges, driven by unpredictable policies and tariffs, undermine the dollar’s credibility. A weaker dollar seemed inevitable as confidence shook. However, despite seeming contradictions, the US remains attractive to foreign investors.
In July, the Treasury International Capital (TIC) data revealed sustained foreign demand for US assets. Concerns about tariffs and policy inconsistencies, including Federal Reserve decisions, haven’t significantly deterred investors.
Though the Fed recently made dovish adjustments, its direction hasn’t swayed significantly. Reviewing TIC data provides further clarity (full data here).
Foreign investors purchased $78.8 billion in US long-term securities in July, with net purchases amounting to $865.1 billion year-to-date. Although lower than 2024’s $1,180.4 billion, investor interest remains robust.
Significant investments were in Treasury bonds/notes and corporate bonds/notes, totaling $85.4 billion. Conversely, July saw equity outflows of $16.2 billion, yet this doesn’t signify an exodus from US stocks.
The net outflow followed record inflows in May and June, $115.8 billion and $163.1 billion, respectively—counterbalancing July’s figures and affirming that one month doesn’t dictate a trend.
Foreign Treasury holdings hit a record $9.2 trillion, with EU holdings of US assets reaching $8.9 trillion in July. This persistence underscores a strong appetite for US assets, even amid challenges.
In light of this, what can we deduce?
Despite temporary dollar softness due to market sentiment and confidence issues, underlying investment flows suggest potential for a dollar rebound, supported by enduring investor appetite for US assets.
Speculations of foreign investors abandoning the dollar prove exaggerated. The reality reflects continued trust and investment in US-assets.
At Bakara Invest, our analysis suggests that despite global interest rate fluctuations, the demand for US assets remains resilient, indicating sustained investor optimism.
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