WSJ
DECEMBER 16, 2009
Foreigners Buy Fewer U.S. Assets: Net Purchases in October Came In at $8.3 Billion
By JEFF BATER
Foreign demand for long-term U.S. financial assets softened in October, as investors sold corporate bonds and agency debt, the Treasury Department said Tuesday.
Net foreign purchases of long-maturity U.S. securities totaled $8.3 billion compared with the prior month, according to the monthly Treasury International Capital report, known as TIC. Net purchases in September totaled $26.7 billion.
Rising oil prices and a weaker dollar scared investors in October.
"The U.S. dollar came under downward pressure due to a temporary bout of pessimism over the prospective strength of the U.S. economy in the fourth quarter of 2009," said Brian Bethune, an IHS Global Insight economist.
Mr. Bethune expects a significant rebound in capital inflows to the U.S. at year's end. "Crude-oil prices have declined and the U.S. dollar has seen a sharp upward bounce," he said.
The monthly Treasury report highlights cross-border acquisitions of securities with maturities of more than one year, including nonmarket transactions such as stock swaps and principal repayment on asset-backed securities.
The closely watched figure excluding transactions that don't occur on an open market recorded net buying of $20.7 billion in long-term U.S. securities, after revised purchases of $40.7 billion in September, the report said.
RBS analyst Alan Ruskin said the TIC data tend to fit with the idea that the U.S. dollar's problems until recently included "a continued lack of interest in agencies and corporate bonds that were crucial sources of inflows before the crisis."
The report showed net foreign sales of debt issued by U.S. government-sponsored enterprises like Fannie Mae and Freddie Mac totaled $5.6 billion in October, compared with $1.8 billion in sales in September. For corporate bonds, net foreign sales were $471 million, versus sales totaling $2.9 billion the previous month.
Foreign net purchases of U.S. Treasury notes and bonds were $38.9 billion in October, compared with net purchases of $44.7 billion in September.
For U.S. stocks, net foreign purchases totaled $10.5 billion in October, compared with purchases of $15.7 billion the previous month.
The report's most comprehensive category, "monthly net TIC flows," includes nonmarket flows, short-term securities and changes in banks' dollar holdings. This measure of net foreign capital outflow was $13.9 billion in October, compared with an inflow of $127.6 billion the previous month.
China, according to the October data, held on to its title as the largest holder of U.S. Treasury securities. China's holdings totaled $799 billion, unchanged from September. Second was Japan, at $747 billion, down from $752 billion in September. The U.K. was third at $231 billion, down from September's $249 billion.
Win Thin, a senior currency strategist at Brown Brothers Harriman & Co., said country holdings are sometimes volatile on a month-to-month basis.
"Bottom line: The big global reserve managers are not dumping U.S. [dollar] assets on a sustained basis," he wrote in a research note.
Financial-market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit.
The government last week reported it ran a $32.9 billion trade deficit during October, down 7.6% from $35.7 billion in September. An increase in exports exceeded the rise in imports.
Supply, Data Team Up
To Weigh on Treasurys
Government bonds fell to their weakest levels in months Tuesday, following stronger growth and inflation reports on U.S. output, and ahead of the final policy statement of the year from the Federal Reserve.
And supply concerns haunted the market again, as a disappointing auction of one-year bills reinforced the challenge the Treasury faces with its coming sales of $118 billion of notes in the last week of 2009.
The benchmark 10-year note was down 15/32 point, or $4.6875 per $1,000 face value, at 98 4/32. Its yield rose to 3.603% from 3.546% on Monday, as yields move inversely to prices. The 30-year bond was down 30/32 point to yield 4.532%.
Prices remained on a downward track throughout the session, tipped lower from the outset by an unexpectedly sharp rise in November's producer price index. The 1.8% increase was six times the previous month's rate, and well above the 1.0% average forecast from Dow Jones' survey of economists. The 0.5% increase in the core PPI, which excludes food and energy, was the largest since October 2008. Rising inflation hurts longer-dated Treasurys as rising prices eat into their returns.