October 16, 2019 / 9:56 PM / 2 months ago

UPDATE 1-In chase for yield, Japan boosts holdings of U.S. Treasuries in August -data

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By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 16 (Reuters) - Japan raised its holdings of U.S. Treasuries by nearly $44 billion in August, the highest increase since July 2013, according to U.S. Treasury department data released on Wednesday.

Japanese investors chased yield, snapping up U.S. Treasuries in the midst of their own country’s negative-yielding bonds.

Japan’s holdings of Treasuries climbed to $1.174 trillion in August, making it the largest non-U.S. holder of U.S. sovereign debt for a third straight month. In July, Japan’s Treasury holdings were at $1.130 trillion.

“There is clearly an appetite for Treasuries from Japan given its very low yield environment on the long end,” said Ben Jeffery, rates analyst at BMO Capital Markets in New York.

China was the second largest owner of U.S. Treasuries with $1.103 trillion in August, down from $1.110 trillion the previous month. China’s holdings of Treasuries were the smallest since April 2017.

China has been reducing its Treasury securities portfolio for some time, but most analysts see it using an aggressive reduction of its holdings as a trade weapon as a remote possibility at best.

U.S.-China trade tensions ramped up in August, stoking a steep surge in U.S. Treasury prices during the month.

Data also showed foreigners sold U.S. Treasuries in August after making net purchases the previous month, with the outflow coming at a time when the U.S. Treasury market experienced a huge rally.

Foreign outflows totaled $30.508 billion in August, compared with an inflow of $10.954 billion in July.

“That was a testament to the fact that clearly demand for Treasuries was coming from domestic accounts,” BMO’s Jeffery said.

“The domestic story also meshes well with what we have been seeing at auctions over the last several months. While generally speaking, the foreign demand has taken a stepback, domestic investors have more than stepped up to fill that void,” he added.

U.S. benchmark 10-year yields started August at 1.892% , collapsing by nearly 40 basis points at the end of the month to 1.506%.

Data also showed foreigners sold U.S. stocks in August amounting to $20.987 billion, from inflows of $24.201 billion the previous month.

Foreign buying of stocks in June and July came after 13 straight months of selling. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang and Tom Brown)

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