U.S. Bond, Stock Purchases By Foreigners Drop Sharply
By CAMPION WALSH and AGNES T. CRANE DOW JONES NEWSWIRES
Buying of U.S. bonds and stocks by foreigners fell sharply in March, suggesting the country may be having a harder time financing its trade deficit with money borrowed abroad.
For the first time since August 2003, foreign central banks were net sellers of U.S. government securities, driving net overall foreign purchases of American securities -- both bonds and stocks -- to $45.7 billion for the month, down nearly by half from the average of the previous two months, according to the Treasury Department's latest monthly report on net capital flows. The overall net figure includes foreign purchases of U.S. bonds and stocks, as well as U.S. purchases of foreign securities.
This trend "doesn't really augur very well for the stability of financing for the current-account deficit," said Ashraf Laidi, chief currency analyst for MG Financial Group.
In addition, it was buying from hedge funds and other entities based in the Caribbean that offset the foreign central-bank selling of Treasurys in March, leaving the government-securities market with greater exposure to a more-fickle investor class.
If foreigners lose their enthusiasm for American investments, it will likely push the dollar down -- or keep it from climbing -- drive up U.S. interest rates and possibly slow the U.S. economy.
The data set, called the Treasury International Capital System, or TICS, is far from perfect, since it relies on information provided on a voluntary basis. It can be volatile, and open to interpretation.
Barclays Capital currency strategist Steven Englander said that despite yesterday's news, the longer-term trend suggests overall capital inflows continue to be sufficient to finance the U.S. current-account deficit.
Alan Ruskin, head of research at financial consulting firm 4Cast in New York, agreed. "In all likelihood, the official sales [were] dominated by one country, Norway, selling Treasurys aggressively," Mr. Ruskin said in an email to clients. "Without the Norwegian sales, net inflows would have topped $60 billion, and Treasury purchases would have looked extremely strong," he said. Norway sold $17 billion of Treasurys in March. That could either be a harbinger, or "could just as easily be seen as a single country making an isolated judgment call."
But Christopher Rupkey, senior financial economist for Bank of Tokyo-Mitsubishi, said the swing by foreign official investors to net sales of Treasurys in March is significant in light of recent speculation that the foreign central banks would diversify away from U.S. government securities. "Part of the conundrum for low Treasury yields can be explained by foreign central bank demand for Treasury securities," Mr. Rupkey said in a note to clients. "This decline of foreign interest could be the start of a new trend, and the result will be higher Treasury yields."
Foreign net purchases of U.S. Treasury notes and bonds totaled $27.9 billion in March, down nearly a third from $42.5 billion in February. Foreign central banks and other foreign "official institutions" sold a net $15.0 billion in Treasurys in March, compared with $11.3 billion in net purchases in February.
By contrast, private net foreign buying of Treasurys has been much stronger the past three months and surged by nearly a third in March to $42.8 billion. In a sign of increased hedge-fund activity, Caribbean banking-center holdings of Treasurys jumped 31% in March to $137.2 billion. Analysts closely associate these centers with hedge funds.
For U.S. stocks, meanwhile, net foreign purchases totaled $1.7 billion in March, down from $7.5 billion in net purchases in February.
Foreign net purchases of U.S. securities in February were revised down to $84.1 billion from the previously reported $84.5 billion, the Treasury said. Foreign net purchases in January were $92.5 billion.