By Steven C. Johnson
NEW YORK, March 15 Foreigners boosted purchases
of U.S. government bonds in January and cut back on U.S.
equities after two months of strong inflows, U.S. Treasury data
showed on Friday.
Demand for Treasuries was driven entirely by official
buyers, including central banks, who snapped up $53.1 billion.
That was the largest inflow in at least three years.
Because private investors sold Treasuries in January, the
sector recorded a net inflow of $32.3 billion, the highest since
"It's not uncommon to see a difference between official and
private buying, but it is uncommon to see a difference this
big," said Tom Simons, an economist at Jefferies & Co.
The surge in official demand suggests central banks
intervened heavily in January to maintain their exchange rates
as investors poured money into their equity markets, said Greg
Anderson, a currency strategist at Citigroup.
China, the largest foreign U.S. creditor, boosted Treasury
holdings by $44.1 billion to $1.265 trillion.
"Equities all around were buoyant in January, and in the
first half, money was flowing into emerging market equities," he
said. "For central banks, that's the money they want to mop up."
Data from the Investment Company Institute showed $37.9
billion was invested in global equity mutual funds in January,
the most in nearly 13 years and more than reversing December's
$30.7 billion outflow.
The surge into overseas equities may have accounted for the
falloff in foreign demand for U.S. stocks, which saw an inflow
of $5.7 billion in January compared with $25.9 billion in
December, Anderson said.
But U.S. stocks began to outpace those in emerging markets
in February and March, with the Dow Jones Industrial Average
hitting a record high earlier this month.
"With what we know about the money flowing into developed
market equities lately, I'd expect (foreign demand for) U.S.
stocks to be much higher" in the Treasury's February data,
Overseas purchases of all long-term U.S. securities slipped
to $25.7 billion in January compared with $64.2 billion the
Demand for U.S. stocks and improvements in U.S. economic
data have helped the dollar notch multi-year peaks against the
Japanese yen and British pound and its highest in three months
against the euro.
"In general, the appetite for risk was improving at the turn
of the year, particularly since the market had got past the
fiscal cliff issues," Simons said.
Congress reached a deal on New Year's Day that avoided
triggering automatic tax increases for nearly all earners.
Foreign inflows into corporate bonds rose by $3 billion to
$5.6 billion in January. Purchases of U.S. agency debt slipped
to $4.6 billion from $18.1 billion in December.
Including short-dated assets such as bills, overseas demand
totaled $110.9 billion in January, compared with a downwardly
revised $22.2 billion the prior month.