NEW YORK (Reuters) - Foreign investors rediscovered a taste for long-term U.S. securities in July as Japan and China increased holdings of U.S. government bonds, which had suffered a record outflow in June.
According to U.S. Treasury data released on Tuesday, foreign holdings of long-term U.S. securities increased by $31.1 billion in July after plunging by $67 billion the prior month.
June’s selling, analysts said, was likely sparked when the Federal Reserve said it was preparing to wind down its monetary stimulus. That drove yields on benchmark 10-year Treasuries up nearly half a percentage point that month and led to a record $40.8 net Treasury debt outflow, according to the data.
But the anxiety eased somewhat in July, and overseas investors bought a net $33.9 billion of Treasuries, nearly reversing the prior month’s outflow.
Japan boosted its Treasury holdings by $52 billion to $1.135 trillion, its first increase in four months, while China’s stash rose $1.5 billion to $1.277 trillion. Sales by the two countries in June accounted for nearly all of that month’s outflow.
“It’s a little surprising given the atmosphere. We were expecting fairly large net sales,” said Gennadiy Goldberg, U.S. strategist at TD Securities. “But I think some in the market were thinking this was as far as (the selloff) would go, that things were going to stop snowballing.”
Investors kept unloading Treasuries in August and into September, at one point driving the 10-year yield to a two-year high above 3 percent. It stood at 2.85 percent on Tuesday.
Financial market participants widely expect the Fed to announce its first reduction in its $85 billion monthly bond purchases when it concludes a policy meeting on Wednesday.
Foreigners were net sellers, albeit less aggressive ones, of U.S. stocks and corporate bonds in July. Net foreign holdings of stocks decreased $8.4 billion after falling $27.1 billion in June. Stocks saw a small net outflow of $922 million, compared with a $5.2 billion outflow in June.
The S&P 500 benchmark stock index shed 1.5 percent in June and rose nearly 5 percent in July.
Including short-dated assets such as bills, overseas investors bought $56.7 billion, reversing June’s upwardly revised outflow of $19.7 billion.
Editing by W Simon