By Steven C. Johnson
NEW YORK Jan 16 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
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