Foreign Investors Dump US Debt at Record Pace as China Cuts Holdings

Saturday, 16 Aug 2014 10:22 AM

 

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The U.S. posted a record crossborder investment outflow in June as China and Japan reduced their holdings of Treasurys and private investors abroad sold bonds and notes.

The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

“Right at the beginning of June, you had a very strong selloff of Treasurys and that’s what frightened a lot of private investors,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said by phone. “As yields stayed lower in subsequent months, some of the investors probably resumed their buying.”

China’s holdings of U.S. Treasurys declined by $2.5 billion to $1.27 trillion, while Japanese holdings dropped $600 million to $1.22 trillion, according to a Treasury report.

China and Japan’s combined share of total foreign holdings of Treasurys has declined since 2004. It dropped to 41.4 percent in June from 50.9 percent in August 2004, according to data compiled by Bloomberg.

Belgian Holdings

Meanwhile, holdings in Belgium climbed $1.7 billion last month to $364.1 billion, the report showed. As home to Euroclear Bank SA, a provider of securities settlements for foreign lenders, Belgium probably serves as a custodial holder for many countries, including China, said Jeffrey Young, an interest-rate strategist at Nomura Holdings Inc. in New York.

Private investors and government holders combined were net sellers of $20.8 billion in Treasury notes and bonds in June, the biggest monthly net sales in a year, according to the report.

Treasurys declined in June amid improving economic data, and as reports released that month, from unit labor costs to consumer prices, indicated inflation pressures beginning to build within the economy. Labor Department data released June 17 showed the consumer price index for May unexpectedly rose to 2.1 percent, the highest since October 2012.

Treasurys were bolstered and yields began to decline after Federal Reserve Chair Janet Yellen described the inflation data as “noisy” and stressed the economy’s need for continued accommodation at her June 18 press conference. That followed a meeting at which policy makers held the benchmark interest rate near zero, as they have since December 2008.

Investors in Treasurys lost 0.1 percent in June, according to Bloomberg World Bond Indexes.

The Bloomberg U.S. Dollar Index, a gauge of the greenback’s value against 10 major currencies weighted by liquidity and trade flows, lost 0.7 percent in June.

© Copyright 2014 Bloomberg News. All rights reserved.

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