Tags: Demand | US | Assets | treasurys

Economic Fears Push Foreigners to Dump US Corporate Bonds, Stocks

Wednesday, 15 Aug 2012 09:40 AM

 

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Foreigners dumped U.S. corporate bonds and stocks in June as worries about the health of the American economy intensified, U.S. Treasury data showed on Wednesday.

Overseas investors sold a net $22.1 billion in corporate debt, the biggest monthly outflow since January of 2010, with the bulk of the selling coming from private accounts.

They also unloaded $4.3 billion in stocks, with sales by private buyers outpacing modest buying by official institutions.

"It was an exceptional outflow and it came at the apex of negative sentiment about the economy," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

For overseas investors, he added, it shows that "the dollar is only a safe haven insofar as they want to hold Treasurys."

Treasury notes and bonds attracted $32.4 billion in June, down from $45.9 billion in May, but well within recent ranges.

China, the biggest foreign U.S. creditor, held $1.164 trillion of Treasury debt in June, steady with the prior month, while No. 2 holder Japan added $10.4 billion to its stash, which stood at $1.119 trillion.

Woolfolk said the debt crisis in Europe also contributed to investor anxiety in June, particularly for private investors. But so did weak U.S. macroeconomic figures, including data that showed the pace of hiring slowed sharply in the second quarter.

That unnerved global investors and made them more careful about buying growth-sensitive stocks and corporate bonds.

Overall, the net inflow into long-term U.S. securities fell to $9.3 billion in June. In May, they pulled in $55.9 billion.

Including short-dated assets such as bills, foreigners added $16.7 billion in June, down sharply from an upwardly revised inflow of $121.3 billion the previous month.

However, Woolfolk said a bounce back was likely in the months that followed, particularly since he thinks the U.S. economy will show signs of stronger growth in the third quarter.

© 2014 Thomson/Reuters. All rights reserved.

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