Overseas investors sold long-dated US securities in February, including government bonds, reversing several months of steady purchases, the US Treasury said on Monday. Foreigners were modest sellers of Treasuries to the tune of $122 million, with selling from official accounts, including central banks, outweighing a modest inflow from private investors. Foreigners had bought $32.3 billion in January.
"The data showed surprisingly light Treasury buying by recent standards, but recall the price action at the beginning of the year was negative for Treasuries, a trend that's since reversed, so we're expecting the March and April data to be more constructive," said Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.
The yield on the 10-year benchmark Treasuries rose to 2.06 percent in February as stronger US economic data and talk that the Federal Reserve could wind down asset purchases later in the year prompted investors to reach for higher-yielding assets. TD Securities interest rate strategist Gennadiy Goldberg noted the 12-month average showed about $30 billion in Treasury purchases a month, "and that included one month that saw $17 billion in selling. So investors shouldn't panic."
China, the largest foreign creditor, raised its Treasury holdings by $8.7 billion to $1.223 trillion, while Japan trimmed holdings by $6.8 billion to $1.097 trillion. Japan's central bank has since started an aggressive stimulus program that will pour some $1.4 trillion into the Japanese economy in less than two years. Analysts expect that to keep the yen weak and push down Japanese bond yields, thus prompting more Japanese purchases of US assets.
US stocks also fell out of favour after netting hefty inflows in recent months. Foreigners pulled $3.7 billion out of equities in February after buying $5.6 billion in January. But demand for corporate bonds increased. Overall, foreigners sold $17.8 billion of long-term US assets, reversing a $25.7 billion inflow seen in January. Including short-dated assets such as bills, overseas investors bought $53.6 billion in February, compared with an upwardly revised inflow of $116.8 billion the prior month.
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