Global Biz

US inflows rebounds in Nov; China decreases Trys

(Agencies)
Updated: 2010-01-20 11:11

NEW YORK: Foreign demand for US securities rebounded in November, the Treasury Department said on Tuesday, as investors grew more optimistic about the long-term prospects of the US economy.

Net overall capital inflows into the United States rebounded to $26.6 billion in November from a revised outflow of $25.4 billion the previous month.

Excluding swaps, net long-term capital inflows jumped to $126.8 billion in November from a revised $19.3 billion inflow in the previous month. This is a key gauge of foreign investor appetite because it excludes short-term transactions.

"The overall report is quite positive and should help the dollar. We saw a big rotation from short-dated Treasuries and by contrast quite an inflow in longer-dated securities," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The dollar edged higher immediately after the data but then shed some of those gains. The euro was last at $1.4293, down 0.6 percent on the day, while the dollar gained 0.4 percent on the yen to 91.09 yen.

China, the largest holder of US Treasury securities, decreased its holdings of US government bonds to $789.6 billion in November. In October, it held $798.9 billion.

Japan, however, boosted its Treasury investments to $757.3 billion from $745.9 billion while UK's holdings of US government bonds increased to $277.5 billion from $230.1 billion.

"We do not think the big global reserve managers are dumping US dollar assets on a sustained basis, but the China trend is worth watching closely in the coming months," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York in a note to clients.

Net private purchases of Treasury bonds and notes hit a record of $87.1 billion in November.

Analysts said the increase likely reflected foreign investors' long-term commitment to the US economy and financial markets.

Overall, foreign private investors bought a net $26.8 billion of US assets in November, reversing an outflow of $43.6 billion in the previous month.

In contrast, official accounts, which include foreign central banks, sold $0.3 billion of US assets in November, compared with an inflow of $18.2 billion in October.

Foreign investors also slowed their purchases of US equities to $9.7 billion from $10.3 billion the previous month.

The rebound in US capital inflows in November came in spite of a decline in the dollar, which fell to its lowest level in more than a year against a basket of currencies. This could bode well for December's capital flows as the greenback rebounded, analysts said.

"It seems that the dollar's weakness did not cause demand to shy away from dollar-denominated assets," said Kathy Lien, director of currency research at GFT in New York. "I think that's just a reflection of the US recovery."