Global demand for US assets slows down

Bloomberg

Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said on Monday.

International holdings of Treasuries increased a net $41.9 billion, compared with the $55.3 billion gain in March. Including bills, the holdings fell a net $2.6 billion.



No sign of diversification by central banks yet

"Talk that foreign central banks will diversify out of their dollar and Treasury holdings is so far just talk," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "The worst financial crisis since the Great Depression is still ongoing and foreign investors and central banks still have a safe-haven demand for U.S. Treasuries."

Including short-term securities such as stock swaps, foreigners sold a net $53.2 billion of U.S. financial assets, compared with net buying of $25 billion the previous month.

China, the biggest foreign holder of U.S. Treasuries, trimmed its holdings of government notes and bonds by $4.4 billion to $763.5 billion. Russia’s holdings slipped by $1.4 billion to $137 billion and Brazil’s by $600 million to $126 billion. Japan, the second-biggest international investor, saw its total drop by $800 million to $685.9 billion.

"China and Russia both indicated a desire to diversify out of dollar denominated instruments, and April seems to have emphasized their current position," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.

Foreign investments in U.S. agency debt slumped for the eighth time in 10 months, by $2.5 billion in April. Net purchases of American equities slowed to $4.6 billion in April from $13.2 billion the prior month. Holdings of corporate bonds tumbled a net $9.7 billion, the biggest decline since November.

Waning demand for Treasuries may exacerbate a jump in yields that threatens to make it harder for the U.S. to pull out of its deepest recession in at least half a century. Yields on benchmark 10-year notes have climbed more than 1 percentage point since mid-March, contributing to an increase in mortgage rates that’s counteracting Fed efforts to aid the housing market.