Foreign demand for long-term US securities hit a seven-month high in August as investors sharply increased purchases of corporate and agency debt, the US Treasury said on Tuesday. Demand for US government bonds slipped slightly, however, and China's Treasury holdings were almost 10 percent lower than they were when Standard & Poor's stripped the United States of its top AAA credit rating in August of 2011.
Overseas investors' holdings of long-term assets increased by $90 billion in August, the biggest inflow since January. They bought a net $67.2 billion in July. Including short-dated assets such as bills, foreigners added $91.4 billion in August, up from a revised inflow of $74 billion the prior month. August's inflow was a four-month high. Purchases of corporate bonds and securities issued or guaranteed by the largest US mortgage financing agencies was especially robust as companies rushed to issue new debt at prevailing low interest rates.
"The tail end of summer was a particularly good time to issue debt due to the very low costs and the feeling that rates may soon be moving higher," said Michael Woolfolk, senior currency strategist at BNY Mellon. Investors increased corporate debt holdings by $10.8 billion in August, nearly 100 times July's inflow and the biggest overall increase since March, 2010.
They were also net buyers of agency debt to the tune of $18.6 billion, the biggest inflow in eight months. The Fed said in September it would buy $40 billion of mortgage-backed debt per month in hopes of reducing long-term interest rates and unemployment. It also said it is unlikely to raise interest rates from zero until at least through mid-2015.
Net foreign purchases of US stocks fell by $314 billion to $6.18 billion in August, though analysts said it is likely to grown in September, when the Fed announced new monetary easing. Inflows into Treasuries slipped slightly to $42.9 billion from $49.5 billion. China increased its holdings by $5.3 billion to $1.154 trillion, but in the 12 months to August, its holdings were down by 9.8 percent.