US net long-term TIC flows fell to $28bn in December, down from $220.2bn in the previous period.
The data points to a sharp decrease in net cross-border purchases of long-term US securities during the month.
Dollar Outlook And Positioning
The steep decline in foreign buying of long-term U.S. assets reported for December 2025 is a major warning sign for dollar strength. This drop from over $220 billion to just $28 billion suggests a significant cooling of international appetite for our securities. We believe this makes short-dollar positions attractive, possibly through put options on dollar-tracking ETFs.
This data puts upward pressure on U.S. Treasury yields, as reduced foreign demand requires higher interest rates to attract buyers. We saw evidence of this in last week’s 10-year note auction, which saw weaker-than-expected foreign participation and resulted in a higher yield. Traders should consider strategies that benefit from falling bond prices, such as puts on Treasury bond ETFs like TLT.
A capital flow shock of this magnitude often precedes a rise in market volatility. The VIX is currently trading at a relatively low 14.5, which seems to underprice the risk this new data introduces. We view this as an opportunity to buy call options on the VIX or establish long volatility positions on major indices.
Equity Risk And Hedging
This situation echoes the capital outflows we observed in the months leading up to the market downturn in late 2023, where foreign selling preceded a drop in equities. The S&P 500 has gained nearly 4% year-to-date, but this foundation of foreign investment now appears shaky. Protective puts on indices like the SPX or QQQ should be considered to hedge against a potential pullback in the coming weeks.
