The TIC Report: What it is and Why Bond Investors Watch It

July 27th, 2012 by

the TIC ReportWhat is the TIC Report?

The Treasury International Capital Report (TIC) measures foreign demand for US financial assets.  It is released monthly with a 6 week lag, and includes data on foreign purchases and sales of US stocks, corporate and government bonds, and agency securities.

 

When is the TIC Report Released?

The TIC report is released on the 15th of each month, unless the 15th falls on a weekend or market holiday, in which case it is released on the first business day after the 15th.  You can find an up to date calendar of TIC release dates here.

 

Where can I find the TIC Report?

You can find the latest TIC report as well as historical reports going back to 2003 here.  Most market participants simply read the press releases, however the full data compiled in the report is available in each press release as well.

 

Why is the TIC Report Important to Bond Investors?

One of the reasons why interest rates on US Treasuries are so low, is because of investment demands from foreigners and foreign governments.   The TIC report gives investors an accurate picture of how this important source of demand for US Treasuries is changing.   If foreign holdings of US Treasuries remain steady or increase, then this is another argument in favor of interest rates staying low or decreasing further.  If the TIC report shows foreign holdings of US Treasuries are decreasing, then this would be another argument in favor of rates rising in the future.

Since the financial crisis in 2008,  US Government Debt and Fed Intervention in the markets have both increased dramatically.  Normally this would cause foreign investors to become uneasy about buying another country’s debt for the following reasons:

  • Just as with individuals and companies when a country increases their debt load dramatically, this increases the chances that the country will have a problem paying their debts.
  • As the Federal Reserve or other Central Bank expands their country’s money supply it should make the value of the existing money in the economy fall.  If you are a foreign individual or government that is holding US Debt (which is denominated in US Dollars) then a falling US Dollar decreases the value of your investment.

It would be logical to think that under these circumstances foreign demand for US Bonds would decrease, causing interest rates to rise as the US Government has to pay a higher yield in order to attract buyers for its debt.  While there has been a lot of talk about this happening, as the graph below of foreign demand for US Treasuries shows, that opposite is actually happening.  Foreign demand for US Debt has increased dramatically since the financial crisis for the following reasons:

  • As the largest economy, with the largest military in the world the US benefits from “safe haven flows.”  When there is economic and/or geopolitical uncertainty in other parts of the world, foreign investors and governments park their money in US Treasuries.
  • Its not that the US is in great shape since the financial crisis, but relative to other countries its seen as “the least dirty shirt in the hamper”.  If you are not comfortable with the financial stability of any country, you park your money in the country that you are the least uncomfortable with.
  • The US Dollar is the world’s reserve currency which is held by other countries in order to pay international debt, and in transactions for commodities like gold and oil.  This creates a natural demand for the currency and US Treasuries which are often held in lieu of US Dollars.

Should foreign demand for US Treasuries begin to decline, this would be a large negative for US Treasuries and our financial markets in general.  By reviewing the TIC report each month, investors can watch for early signs that the trend is reversing and position their investments accordingly.

Have a question about the TIC report that we didn’t answer?  Hit us up on the comments section below.

This lesson is part of our Free Guide to Investing in Treasuries.  You can find the full guide here.

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