Foreigners pare buying at U.S. bond sales in late July

(Reuters) - Overseas investors reduced their purchases at U.S. Treasury auctions in late July even as U.S. yields remain the highest among the developed economies and a quarter of the world’s bonds are offering negative yields.

FILE PHOTO: U.S. Dollar and China Yuan notes are seen in this picture illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

The reduction coincides with speculation about whether China may cut its Treasury holdings in retaliation for tariffs on its exports to the United States.

China is the largest foreign holder of U.S. government debt. In May, its Treasuries holding fell to a two-year low at $1.11 trillion.

Foreign accounts, which make a major group of holders of U.S. government debt, bought less two-year, five-year and seven-year notes auctioned by the U.S. Treasury Department than the month before, Treasury data released on Wednesday showed.

The data do not offer details on the countries which were allotted the Treasury supply two weeks ago.

Foreigners purchased $7.111 billion of the latest 2-year supply, down from the $7.654 billion they purchased in June, according to the Treasury’s auction allotment data.

They bought $4.709 billion of the latest 5-year supply, their lowest since September. This compared with $8.273 billion they purchased at the five-year auction held in June.

They purchased $4.695 billion of 7-year debt, down from $7.262 billion the prior month.

The Treasury offered $40 billion of 2-year notes on July 23; $41 billon in 5-year debt on July 24 and $32 billion in 7-year notes on July 25. US2YINV=RRUS5YINV=RRUS7YINV=RR

With the decrease in overseas purchases, bond dealers and domestic fund managers picked up their buying of these debt maturities in late July, Treasury data showed.

For example, bond dealers bought $14.236 billion of the latest 5-year note issue, which was the most they purchased at an auction since December.

Investment managers bought $18.535 billion of the 7-year note supply, which was their biggest purchase of this maturity at an auction since April.

Meanwhile, the Treasury planned to sell a combined $84 billion in three-year, 10-year and 30-year debt this week in a bid to raise money to repay bondholders and to fund new federal spending.

Graphic: China, Japan Holdings of U.S. Treasuries -

Reporting by Richard Leong; editing by Grant McCool