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U.S. Investment Outflow Hits Record as China Cuts Holdings

By Kasia Klimasinska
August 15, 2014 11:04 AM EDT 246 Comments

The U.S. posted a record cross-border investment outflow in June as China and Japan reduced their holdings of Treasuries and private investors abroad sold bonds and notes.

The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

“Right at the beginning of June, you had a very strong sell-off of Treasuries and that’s what frightened a lot of private investors,” Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York, said by phone. “As yields stayed lower in subsequent months, some of the investors probably resumed their buying.”

China’s holdings of U.S. Treasuries declined by $2.5 billion to $1.27 trillion, while Japanese holdings dropped $600 million to $1.22 trillion, according to a Treasury report today.

China and Japan’s combined share of total foreign holdings of Treasuries has declined since 2004. It dropped to 41.4 percent in June from 50.9 percent in August 2004, according to data compiled by Bloomberg.

Belgian Holdings

Meanwhile, holdings in Belgium climbed $1.7 billion last month to $364.1 billion, the report showed. As home to Euroclear Bank SA, a provider of securities settlements for foreign lenders, Belgium probably serves as a custodial holder for many countries, including China, said Jeffrey Young, an interest-rate strategist at Nomura Holdings Inc. in New York.

Private investors and government holders combined were net sellers of $20.8 billion in Treasury notes and bonds in June, the biggest monthly net sales in a year, according to the report.

Treasuries declined in June amid improving economic data, and as reports released that month, from unit labor costs to consumer prices, indicated inflation pressures beginning to build within the economy. Labor Department data released June 17 showed the consumer price index for May unexpectedly rose to 2.1 percent, the highest since October 2012.

Treasuries were bolstered and yields began to decline after Federal Reserve Chair Janet Yellen described the inflation data as “noisy” and stressed the economy’s need for continued accommodation at her June 18 press conference. That followed a meeting at which policy makers held the benchmark interest rate near zero, as they have since December 2008.

Yields Fall

Thirty-year bond (BUSY) yields fell seven basis points, or 0.07 percentage point, to 3.12 percent at 11:01 a.m. in New York, according to Bloomberg Bond Trader data.

Investors in Treasuries lost 0.1 percent in June, according to Bloomberg World Bond Indexes. The Bloomberg U.S. Dollar Index, a gauge of the greenback’s value against 10 major currencies weighted by liquidity and trade flows, lost 0.7 percent in June.

To contact the reporter on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Brendan Murray, Mark Rohner

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