UPDATE 1-Foreign demand for US assets rises in Dec-Treasury

Fri Feb 15, 2013 10:03am EST

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By Steven C. Johnson

NEW YORK Feb 15 (Reuters) - Foreigners continued to pour into long-term U.S. assets as 2012 wound down, with demand rising for both government bonds and equities, the U.S. Treasury said on Friday.

Overseas investors bought $64.2 billion of long-term U.S. securities in December, the most in four months, after buying$52.4 billion the prior month.

"These are reassuring numbers, as people are buying both Treasuries and equities," said Gennadiy Goldberg, a U.S. rates strategist at TD Securities in New York. "It seems demand for U.S. investment products knows no bounds at this point."

U.S. Treasury purchases rose to $29.9 billion from $26.4 billion. Private investors were the most active buyers, though China, the largest foreign U.S. creditor, also added $19.7 billion in Treasuries, raising its stash to $1.203 trillion.

Foreigners' U.S. equity purchases totaled $25.9 billion, compared with $21.5 billion in November.

The demand for stocks corresponds with a recent rally in the benchmark S&P 500 index, which hit a five-year high early in 2013. Goldberg said forthcoming data for January is expected to show continued robust demand for U.S. stocks.

Aggressive monetary stimulus from major central banks and record low interest rates helped boost stock prices.

Treasuries, on the other hand, have lost ground since December, with benchmark 10-year yields rising over 2 percent this year from about 1.60 percent in late November.

That may mean reduced inflows in January's data, which will be released next month, strategists said.

Already in December, investors from Caribbean banking centers, a proxy for hedge funds, sold $13.5 billion of Treasuries, according to the data.

Demand for bonds issued by the largest U.S. mortgage financing agencies was also strong, with foreigners buying $18.1 billion in December compared with just $2.7 billion in November.

That was the best showing for agencies since August, when demand was strong in anticipation of Federal Reserve plans to buy such debt to lower long-term interest rates and boost housing.

The Fed announced plans to buy $40 billion in mortgage-baked bonds per month in September.

"Agency buying was especially strong. We attach some of this to extended quantitative easing, but also perhaps window dressing into year end," said David Ader, head of government bond strategy at CRT Capital Group.

Including short-dated assets such as bills, overseas demand totaled $25.2 billion in December, compared with an upwardly revised $29.7 billion the prior month.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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