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U.S. long-term capital inflow slips in January

16 March 2011 08:54 (UTC +04:00)

BakÄ± - APA-Economics. Foreigners trimmed purchases of long-dated U.S. securities in January for a third straight month, with central banks again spearheading the selling, the U.S. Treasury Department said on Tuesday, Reuters reported.

Private investors were net buyers though, helping the United States attract a net long-term capital inflow of $51.5 billion in the first month of 2011, from a downwardly revised $62.5 billion inflow in December.

Including short-dated assets such as bills, net inflows slipped to $32.5 billion from $49.7 billion the prior month.

"This is encouraging, as we want to rely on private sector investment rather than on the intervention proceeds of central banks being recycled into bond markets," said Michael Woolfolk, senior strategist at BNY Mellon in New York. "The latter isn’t the most stable form of investment."

Most central bank Treasury purchases in recent years have come from China and other developing countries who buy to keep their own currencies from rising too much against the dollar.

But in January, central banks unloaded long-term U.S. assets for the third straight month, though net sales fell to $14.7 billion in January from $45.1 billion in December.

China, the largest foreign U.S. creditor, cut its Treasury holdings slightly to $1.155 trillion from $1.160 trillion. U.S. government revisions last month showed China held nearly a third more in Treasury debt than initially reported.

The revisions confirmed what markets had suspected. China has been transacting some Treasury purchases through banks in other countries. But analysts said it also means China has an even bigger stake in the U.S. ability to tame fiscal deficits and avoid a major decline in Treasury prices.

Overall net Treasury purchases slipped to $46.5 billion in January from $54.6 billion the prior month, with private purchases nearly double those by official investors.

Net foreign buying of U.S. stocks swelled to $15.9 billion in January from $6.8 billion, though corporate bond purchases collapsed to $655 million from $2