One of the helpful fundamental datasets provided by the U.S. Treasury Department is the monthly Treasury International Capital data, or TIC flows (always measured in USD). This is designed to monitor the “flow of funds” into and out of the United States, by measuring the amount of foreign securities purchased by U.S. citizens, and the amount of U.S. securities purchased by foreign nationals.

TIC flows by nature are normally fairly stable. These are the “big money” funds, shifting capital about the globe to take advantage of investment opportunities, for example, interest-rate dependent carry trades or high-performing equities in developing nations. Such opportunities, particularly those making use of the “spread” between central bank interest rates, generally neither appear nor vanish overnight. What does change with amazing rapidity is investor risk appetite, and that unpredictable variable adds a generous dash of volatility to the TIC dataset.

Such a run of volatility began in September 2007.

The average TIC inflow of funds into the U.S. is approximately $100 billion per month, although spikes below and above that amount are common. However, in August 2007, at the initiation of the subprime mortgage crisis, the TIC inflow printed, not only an uncommon negative number, but an unheard-of large negative number, −$163.0 billion, as foreign investors yanked their capital from the U.S. and U.S. investors dumped long- and short-term securities held in other nations. This was a one-off event, with the September 2007 TIC flow printing at −$14.7, October at $97.8, and November at $149.9, illustrating how quickly investors adapted to the changing economic fundamentals taking hold during that time span.

Another negative TIC flow, of −$48.2, occurred in March 2008 during the turmoil over Bear Stearns; however, April recovered to $60.6. May again printed negative, at −$2.5, June was positive at $51.1, July negative at −$74.8, August was roughly flat at −$0.4, and September 2008 again saw a massive inflow of funds into the U.S., with the TIC registering $143.4. The data is organised into a table, below, for easier reference:

month    figure (Bn USD)
August 2007    −$163.0
September 2007    −$14.7
October 2007    $97.8
November 2007    $149.9
December 2007    $60.4
January 2008    $37.4
February 2008    $64.1
March 2008    −$48.2
April 2008    $60.6
May 2008    −$2.5
June 2008    $51.1
July 2008    −$74.8
August 2008    −$0.4
September 2008    $143.4

Obviously, the TIC flow is a useful illustration of risk aversion and the mindset of large investors, with the negative printings tracing a chronology of the current financial crisis.

One presumes that the reading for October, due for release on 15 December, will register a similar flow of funds into the U.S. as shell-shocked investors repatriated their capital, exchanging them from the currency of the investment nation into USD and causing its continued appreciation. The graphic below, from the U.S. Treasury’s quarterly analysis, clearly illustrates U.S. investors’ sudden aversion to foreign investments, with the amount of securities sold merely in the third quarter of 2008 dwarfing those purchased during any of the previous four years (as shown by the blue bars):

The daily chart of AUD/USD, below, gives an example of this dynamic in action, with the currency pair’s 2000 pip fall in October bracketed by the pink vertical lines: