Foreigners increased purchases of U.S. securities in November, the U.S. Treasury Department said on Tuesday, though it was private investors rather than central banks who did most of the buying.
The United States attracted a net long-term capital inflow of $85.1 billion, above an upwardly revised October inflow of $28.9 billion. Net Treasury purchases rose, though China, the largest foreign U.S. creditor, cut holdings by $11.2 billion.
Including short-dated assets such as bills, net inflows rose to $39 billion from an upwardly revised $15.1 billion. But that depended heavily on private buyers, with official investors, including central banks, recording a record net outflow of $40.8 billion, Treasury said.
In recent years, the United States has relied heavily on central banks from China, Japan and elsewhere to buy Treasuries and finance its current account deficit, and analysts said a shift toward more private financing would be a welcome sign.
We don't know yet if it's a long-term trend, but we hope it is, because it would reflect ongoing foreign confidence in the United States and the U.S. economy despite interest rates that are clearly not attractive, said Michael Woolfolk, senior currency strategist at BNY Mellon.
CHINA SELLS TREASURIES, JAPAN BUYS
With $895.6 billion in Treasuries, China remained the largest foreign U.S. creditor in November, though the pace of its new purchases has been erratic over the last year.
To control the value of its yuan currency, China buys up incoming foreign exchange earnings, parking a large share in U.S. Treasury debt. It has amassed foreign exchange reserves of $2.8 trillion, which economists say is far in excess of what it would need to pay for imports and make interest payments.
Last year, China said it was buying more sovereign debt from Japan and recently pledged to buy euro-denominated bonds from indebted euro zone states such as Portugal and Greece.
Japan, the second largest holder of Treasury debt, boosted purchases by $2.2 billion in November to $877.2 billion.
Overall net inflows into Treasuries rose to $61.7 billion from a revised $24.7 billion in October, but private accounts bought more than four times as much as institutions.
MIXED MESSAGE FOR U.S. DOLLAR
The strong Treasury inflow coincided with the Federal Reserve announcing in November a $600 billion bond-buying program and a subsequent bond market sell-off that by December had pushed long-end yields about one percentage point higher.
But while that suggests financing the U.S. current account gap remains manageable, net selling of bills and other short instruments means the dollar may continue to struggle, said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Bank.
The problem the dollar faces is ... that many of these long-term flows tend to have a short-term dollar sales hedge attached, thanks to the impact of very low U.S. short-term rates, Ruskin wrote.
Foreigners were net buyers of U.S. equities to the tune of $13.3 billion, compared with $16 billion in October, though again official institutions were net sellers. U.S. corporate bonds saw a $4.7 billion inflow, up from $1.1 billion the prior month.
(Editing by Padraic Cassidy)