(Recasts; adds context, details on data)
NEW YORK, Dec 15 (Reuters) - Foreign investors sold a record amount of U.S. Treasury bonds and notes in the month of October, according to U.S. Treasury Department data released on Tuesday, with market participants pricing in a rate increase by the Federal Reserve this month.
Foreigners sold $55.2 billion in U.S. Treasury debt in the month, after purchases of $17.4 billion in September. October’s outflow was the largest since the U.S. Treasury Department started recording Treasury debt transactions in January 1978.
Private offshore investors sold $36.7 billion in U.S. government bonds, while foreign official institutions sold $17.1 billion.
At the conclusion of the Fed’s two-day policy meeting in October, the U.S. central bank held interest rates steady, as expected, but opened the door for a rate increase in December. The Fed said raising rates at its next meeting would depend on progress made on employment and inflation.
That Fed statement prompted a sell-off in Treasuries that pushed U.S. yields on both the short- and long-end higher. On U.S. two-year notes, for instance, the tenor most vulnerable to a rate increase, the yield in October ended at 0.7360 percent, up from about 0.5770 percent at the beginning of the month.
The Fed on Wednesday is widely expected to deliver its first interest rate increase in nine years.
Foreign selling in U.S. Treasuries contributed to long-term outflows from U.S. assets totaling $16.6 billion in October, from purchases of $33.6 billion in September. Including short-term bills, however, overseas investors bought $68.9 billion in October, after selling a revised $172.7 billion in U.S. assets the previous month.
The data also showed that China’s holdings of U.S. Treasuries declined in October to $1.254 trillion, the lowest since February this year. In September, China had $1.258 trillion in U.S. Treasuries. The world’s second-largest economy, however, remained the largest holder of U.S. government paper.
Japan, the second-largest U.S. Treasury debt holder, reduced its holdings to $1.149 trillion in October, from $1.177 trillion the previous month. Japan’s U.S. Treasury holdings have declined for a third straight month.
Overall, foreign central bank holdings of U.S. Treasuries declined to $6.046 trillion in October, from $6.103 trillion in September.
Meanwhile, U.S. equities showed an outflow of $17.2 billion in October from an outflow of $27.7 billion in September. Foreign investors have sold U.S. stocks in five of the last six months. (Reporting by Gertrude Chavez-Dreyfuss; editing by Tom Brown and Dan Grebler)