Foreigners sell U.S. assets in May; private outflows rise

NEW YORK Tue Jul 16, 2013 10:21am EDT

NEW YORK (Reuters) - Foreigners sold long-dated U.S. securities for a fourth straight month in May, U.S. Treasury data showed on Tuesday, with net private outflows rising to their largest since November 2008.

Private investors sold $29 billion in U.S. Treasury bonds in May, the largest since January this year, according to the Treasury report. Overall, foreigners sold $27.2 billion in long-term U.S. securities during the month, compared with sales of $21.8 billion in April.

The bond sell-off by private investors coincided with expectations the Federal Reserve will scale back its stimulus program. Fed Chairman Ben Bernanke, speaking to the Joint Economic Committee of Congress on May 22, started to discuss the way in which the Fed might ease off on bond purchases, which led to a rout in the bond market.

On a net basis, however, the data showed an inflow in U.S. Treasury bonds of $11.3 billion, versus outflows of $38.3 billion in April. Official buyers, which include central banks, bought a net $40.3 billion in U.S. Treasuries.

"The net long-term outflow picture likely correlated with the major sell-off in bonds in May, with expectations of a Fed tapering," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

He attributed the overall net inflow in U.S. Treasuries to a flight-to-safety bid. "Global market volatility was high in May due to all the tapering concerns. Global equities sold off, including emerging markets and so net-net, the flight to safety offset the bond sell-off," Esiner said.

China, the largest foreign creditor, raised its Treasury holdings to $1.3159 trillion, while Japan trimmed its holdings to $1.111 trillion.

Japan's central bank earlier this year 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 U.S. assets.

U.S. stocks also fell out of favor after netting inflows in previous months. Foreigners pulled $8.6 billion out of equities in May after buying $11.2 billion in April.

Foreigners also sold $10.3 billion in U.S. agency debt, after buying $22.8 billion in April.

But demand for corporate bonds increased, with inflows of $7.6 billion in May after outflows of $4.7 billion the previous month.

Including short-dated assets such as bills, overseas investors bought a net $56.4 billion in May, compared with inflows of $28.3 billion the previous month.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)

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