July 17, 2018 / 9:35 PM / 3 months ago

UPDATE 1-Foreigners buy U.S. Treasuries in May; Russia drops out of list-data

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By Gertrude Chavez-Dreyfuss and Richard Leong

NEW YORK, July 17 (Reuters) - Foreigners bought U.S. Treasuries in May, led by private investors, data from the Treasury Department showed on Tuesday, in a safety bid amid geopolitical tensions linked to trade and Italy-related turmoil.

What was also striking from the data was Russia’s exclusion from the list of Treasury holders in May, analysts said. Data showed that Russia’s holdings already had a massive drop to $48.7 billion in April from $96.1 billion in March.

Overseas investors bought a hefty $26.69 billion in U.S. Treasuries in May, after net sales of $4.78 billion and $4.92 billion in April and March, respectively. Private investors purchased $50.28 billion in Treasuries, more than offsetting the selling of $23.8 billion by foreign official institutions, data showed.

The increase in U.S. Treasuries investment was also reflected in the rise in holdings by major Treasury holders to $6.21 trillion in May, from $6.17 trillion the previous month.

Gennadiy Goldberg, senior rates strategist at TD Securities, said there was a flight to safety in May because of the global trade posturing between United States and the rest of the world led by China, the European Union and Canada.

Italy was also in the headlines in May as the euro zone’s third-largest economy, mired in wrangling among its political parties, had been seeking a new government.

Investors also took advantage of yields topping out in May to re-enter the market at better prices.

Benchmark 10-year yields hit a near seven-year peak.

China and Japan increased their holdings of U.S. government debt in May.

China’s holdings of Treasuries rose to $1.183 trillion from $1.182 trillion in April, while Japan’s increased to $1.049 trillion from $1.031 trillion in April.

China and Japan are the two biggest foreign holders of U.S. government securities.

The biggest mystery, analysts said, was Russia’s exclusion from the list of Treasury holders in May after a 50 percent reduction in its holdings in April.

Analysts said Treasury selling could be related to sanctions imposed by the United States on Russia in April, as the latter focused on increasing purchases of gold instead.

The Trump administration imposed new sanctions on April 6 on seven of Russia’s richest men and 17 top government officials.

Meanwhile, foreign investors dumped $26.58 billion in domestic equities in May, their biggest monthly sale of stocks since $32.17 billion in outflows in September 2015, Treasury data showed.

Overall, overseas investors bought $69.9 billion in U.S. assets in May, down from $233.1 billion in April. (Reporting by Gertrude Chavez-Dreyfuss and Richard Leong; Editing by Susan Thomas and James Dalgleish)

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