According to the Bureau of Economic Analysis, “total January exports of $114.4 billion and imports of $182.9 billion resulted in a goods and services deficit of $68.5 billion. Total 2005 exports of $1,272.2 billion and imports of $1,995.8 billion resulted in a goods and services deficit of $723.6 billion.”

The January trade deficit, annualized, represents a 13% increase over the trade deficit of 2005.

Since the trade deficit increased 18.3% in 2004 and 15.1% in 2005, the current rate of increase seems to indicate slower growth in the trade imbalance.

Nevertheless, the excess of imports over exports means that cash is flowing into the U.S. capital market from abroad, which should continue to prop up long bond prices.

For the first year since 2001, investors moved back into money market mutual funds in 2005, with net sales of $127 billion. (See: Federal Reserve flow of funds account F206.)

The largest flows into money market funds came from U.S. households ($47.7 billion) and funding corporations ($58.4 billion).

The return of investors to money market funds was clearly the result of the Federal Reserve policy of increasing short-term interest rates, combined with the flattening of the yield curve due to buying pressure on longer-term fixed income securities resulting from the trade deficit.

Investment by funding corporations picked up in the last quarter of 2005 to an annual rate of $168.6 billion. Much of the money of funding corporations is connected to cash collateral held on short-sales of securities.

Presumably, collateral put up by speculators against long-bonds (gambling that long-bond prices would fall) was being channeled through funding corporations into money market funds, thereby helping to keep short-term rates down.

(See: “Just What Are Funding Corporations?“)