Foreigners sold US government bonds in September for the first time in nine months and bought stocks and mortgage debt as the Federal Reserve began a new round of monetary easing, US Treasury data showed on Friday. Overseas investors reduced Treasury holdings by $17.3 billion in September, the first outflow from the government bond market since December of 2011.
The move came during a month when the Fed said it planned to start buying $40 billion in mortgage-backed debt each month to lower long-term interest rates and boost economic growth. Prior rounds of Fed asset purchases that have flooded the financial system with cheap money have helped to boost high-yielding, high-risk assets such as stocks.
"This is the post-QE3 trade," said Gennadiy Goldberg, US strategist at TD Securities. "That's why we saw a shift into agency bonds and strong demand for equities." Foreigners bought a net $17.8 billion in bonds issued or guaranteed by the biggest US mortgage financing agencies, down slightly from $18.6 billion the prior month. They also bought $23.8 billion in US stocks, the biggest inflow in at least three years, after buying just $6.2 billion in August.
Much of the money was diverted from the Treasury market, which had been attracting an average inflow of around $43 billion per month through August. That pushed overall foreign purchases of US long-term assets down to $3.3 billion in September, the lowest total since July of 2011, from $90.3 billion in August.