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NEW YORK (Reuters) - Foreigners recovered an appetite for U.S. securities in November, boosting purchases of government debt, corporate bonds and equities after largely avoiding U.S. assets the prior month.
Overseas investors bought $52.3 billion in long-term U.S. assets in November, the most in three months. Revisions to previous data showed they were net sellers to the tune of $1 billion in October.
BNY Mellon currency strategist Michael Woolfolk called the turnaround "a very welcome development" and said it reflected a rebound in investor optimism at the end of an anxious year.
"We started the year worried about Europe, about China's economy, about U.S. elections," he said. "But the perfect storm did not materialize in the second half. We started seeing the glass as half full, and that is reflected in these numbers."
Aggressive monetary stimulus from major central banks and record low interest rates also helped boost stock prices and prompted investors to reach for higher returns in the U.S. corporate bond market.
Foreigners bought a net $21.5 billion of U.S. equities in November, up from just $1.3 billion in October. Net inflows into corporate bonds totaled $10.9 billion, the highest in at least three years, from $3.9 billion the prior month.
Demand for U.S. Treasuries also doubled to $26.4 billion from a downwardly revised $12 billion in October, with all of the buying in November coming from private investors.
That was notable since some central banks, notably China's, have slowed their accumulation of Treasuries over the last year, making it more important for the United States to attract private capital in order to cover its trade deficit.
The inflow into long-term U.S. assets was enough to cover November's trade gap for the first time since August, even though a surge in imports caused the trade deficit to widen unexpectedly to $48.73 billion.
Failure to cover the trade deficit with foreign inflows puts increased pressure on the government to borrow from central banks that may not want to accumulate more Treasuries.
China, the largest foreign U.S. creditor, added just $200 million to its Treasury holdings in November, which totaled $1.170 trillion.
Japan, the second largest foreign U.S. creditor, also saw its pace of Treasury purchases slow in November, a month when the yen lost more than 3 percent against the dollar. Japan held $1.133 trillion in November, from $1.132 trillion in October.
TD Securities strategists said private demand for Treasuries likely reflected a shift away from bonds issued by the largest U.S. mortgage financing agencies.
The latter saw a surge in demand in September after the Federal Reserve said it would start buying $40 billion in mortgage-backed bonds per month, a program known as QE3.
Foreigners bought just $2.7 billion of agency debt in November, the smallest amount since June, after buying $17.8 billion in September and $8.2 billion in October.
Including short-dated assets such as bills, overseas demand totaled $27.8 billion, reversing the prior month's $58.9 billion outflow.
Reporting by Steven C. Johnson; Editing by Chizu Nomiyama