The July international capital flows data released today reveals a couple of key trends and vulnerabilities—most significantly that foreign investors are still buying long-term Treasuries. In fact Chinese demand for U.S. Treasuries has kept pace with the record new issuance. Yet, given the new supply , the willingness of foreign and domestic investors to buy U.S. assets might pose challenges ahead.
Although net foreign inflows to the U.S. (both short- and long-term flows) were negative (US$97.5 billion), purchases of U.S. long-term assets rose in July. The good news is that the US$44[...]