By Steven C. Johnson
NEW YORK Dec 17 Foreigners ditched U.S.
equities and cut mortgage-backed debt in October in favor of
government bonds, U.S. Treasury data showed on Monday, as market
and global economic uncertainty increased.
Overall, overseas investors bought $1.3 billion in long-term
U.S. securities, the fewest in at least three years, with much
of the selling coming at the expense of stocks and bonds issued
or guaranteed by the biggest U.S. mortgage financing agencies.
The shift appeared to reverse the heavy purchases of stocks
and mortgage-related bonds seen in September after the Federal
Reserve announced plans to start buying $40 billion of mortgage
debt per month to cut long-term interest rates and stoke growth.
"It looks like we're seeing an unwind of the post-QE 3
trade," said TD Securities U.S. strategist Gennadiy Goldberg,
referring to the Fed's third round of monetary easing, known as
quantitative easing, or QE.
When including short-term assets such as bills, Treasury
data showed foreigners were net sellers of U.S. assets to the
tune of $56.7 billion, the largest outflow since July 2011.
Some of the shift may reflect demand for higher-yielding
assets abroad, analysts said. By suppressing rates and flooding
the system with dollars, the Fed's several asset-buying programs
have weighed on the greenback and dulled the appeal of
"The weakness in net flows....is testimony to how
policymakers have dampened demand for the U.S. dollar" and
prompted U.S. investors to look for higher-yielding assets
abroad, said Alan Ruskin, head of G10 foreign exchange strategy
at Deutsche Bank.
However, Goldberg noted that demand for low-yield Treasury
debt recovered, with foreigners buying $15.8 billion in October.
They had sold $17.3 billion the prior month, when impending Fed
action burnished the appeal of stocks and mortgages.
"Overall, it looks weak, but look below the headline numbers
and you'll see there's really no lack of demand for U.S.
assets," he said. "I doubt that will change into next year.
There is still tons of uncertainty and that increases demand for
safe-haven Treasuries. People need a place to stash their cash."
China, the largest foreign U.S. creditor, increased its
Treasury holdings by $7.9 billion to $1.162 trillion. Japan, the
second largest foreign holder, bought $5.2 billion in October,
bringing its total to $1.135 trillion.
Investors in October were on edge about a forthcoming U.S.
presidential election that looked like it would be a close-run
affair; President Barack Obama ultimately prevailed in November.
But the uncertainty has increased since then, with markets
now worried about whether Obama and Republicans in Congress can
forge a deal to avoid the so-called "fiscal cliff" -- some $600
billion in automatic spending cuts and tax hikes that economists
fear will plunge the economy back into recession if they take
effect as planned in January.
In October, foreigners bought a net $598 million of U.S.
stocks, well below the $23.8 billion inflow in September. They
reduced purchases of agency mortgage debt to $8.4 billion from
$17.8 billion in September.