Tuesday, June 16, 2009

Investors Shed U.S. Assets

By RIVA FROYMOVICH and DEBORAH LYNN BLUMBERG Foreign and U.S. investors moved capital out of U.S. assets in April, with much of the outflows concentrated in short-term securities, such as Treasury bills. The switch in capital flows reflect investors' greater appetite for risk. Foreign investors sold dollar-denominated assets they had bought to shelter their portfolios from turbulent markets. U.S. investors, meanwhile, bought more foreign securities. Net outflows in April, including short-term securities and changes in bank deposits, totaled $53.2 billion, according to the Treasurys International Capital report, compared with the inflows of $25 billion in March. "With the global economy pulling back from the perceived precipice in early 2009 ... the April Treasury TIC report for the most part reflects these rapid changes in investor preferences," said Brian Bethune, chief U.S. financial economist at IHS Global Insight. Private-sector investors liquidated $32.4 billion of Treasury bills in April. In addition, three large official purchasers of Treasurys -- China, Japan and Russia -- all trimmed their holdings of U.S. debt. In total, government entities sold $12.1 billion of Treasury bills. And there likely is more to come. "I would expect that the May data will show much larger liquidations of Treasury bills," said Alan Ruskin, head of international currency for RBS. Some of the funds were shifted into longer-term U.S. government debt, the data show, with private investors from overseas buying a net $24.8 billion in notes and bonds, and foreign official institutions, including central banks, buying a net $17.1 billion. Foreign investors continued to shun debt issued by housing-finance companies Fannie Mae and Freddie Mac, selling $2.5 billion in April after $15.6 billion in sales in March. They also sold $9.7 billion in corporate debt after purchases of $3.5 billion in the previous month. Treasury markets shrugged off the data and posted gains, focusing on the losses in the stock market and two coming rounds of Treasury purchases by the Federal Reserve this week. Late Monday in New York, the 10-year note rose 18/32 point, or $5.625 for every $1,000 invested, at 95 5/32, to yield 3.713%, down from 3.783% late Friday, as yields move inversely to prices. Enthusiasm for an improving economy also was tempered by softer data on regional manufacturing and housing for June, underscored by a note of caution from Treasury Secretary Timothy Geithner on Monday. He said the nation is "still facing enormous challenges," and unemployment is likely to rise. The threat of sales by large foreign holders of U.S. government debt also dissipated over the weekend, as Russia calmed fears over its stance on Treasurys and the dollar's status as reserve currency. Mr. Geithner on Monday reiterated that China has "a lot of confidence" in U.S. economic fundamentals.

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