Foreigners closed out 2011 by slashing purchases of long-term U.S. assets, unloading more government bonds in December than in any month since mid-2009, U.S. Treasury data showed on Wednesday.
Overall, the United States attracted a net $17.9 billion in foreign long-term security purchases, though that number was skewed by $38.9 billion of U.S. net purchases of foreign stocks and bonds.
That means foreigners sold $21 billion in long-term U.S. assets, said BNY Mellon currency strategist Michael Woolfolk.
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"That's a concern," he said. "We had some very large, very surprising negatives — in Treasurys, corporate bonds, stocks. I don't think I can remember a month in the recent past when we've had these types of outflows."
Overseas investors were net sellers of Treasurys to the tune of $16.6 billion, the biggest monthly outflow since May of 2009. China, the biggest foreign U.S. creditor, cut Treasury holdings by $31.7 billion in December to $1.101 trillion.
Woolfolk said that continues a trend in which China has appeared to slow its Treasury purchases, which it makes to prevent its own currency from rising too swiftly against the dollar.
He said the dollar could weaken if the pace of Chinese buying continues to slow and the United States struggles to finance its balance-of-payments deficit.
Demand for short-dated assets such as bills was more robust — foreigners bought a net $87.1 billion compared with a revised $42.9 billion inflow in November.
One bright spot was a rise in overseas demand for securities issued or guaranteed by U.S. mortgage financing agencies Fannie Mae and Freddie Mac. Foreigners bought a net $27.2 billion in December, more than four times the prior month's total.
"There was decent Treasury selling in December but to some degree at the expense of buying in mortgage-backed securities and agencies," said David Ader, head of government bond strategy at CRT Capital in Stamford, Connecticut.
Some analysts said that could mean foreigners are anticipating that any future monetary easing by the Federal Reserve would involve buying mortgage-backed debt as part of an attempt to help the U.S. housing market.
"This is one of the few months in recent history when foreigners holdings actually went up," said Janaki Rao, mortgage strategist at Morgan Stanley in New York.
He said the increase was driven by "Asian buying as well as buying out of the U.K. and the Caribbean indicating hedge fund purchases."
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