Foreign Investors Move Out of US Corporate Bonds

Foreign investors moved out US corporate bonds and stocks in June on heightened concerns over the health of the US economy, according to US Treasury data.

Overseas investors sold a net US$22.1bn in corporate debt, the biggest monthly outflow since January of 2010, with the majority of the selling coming from private accounts. They also unloaded US$4.3bn in stocks, with sales by private buyers outstripping modest buying by official institutions.

“It was an exceptional outflow and it came at the apex of negative sentiment about the economy,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. He added that for overseas investors, it shows that “the dollar is only a safe haven insofar as they want to hold Treasuries.”

Treasury notes and bonds attracted US$32.4bn in June, down from US$45.9bn in May, but still well within recent ranges.

China, as the biggest foreign US creditor, held US$1.164 trillion of Treasury debt in June, little changed from May, while the second-biggest, Japan added US$10.4bn to its holding, which stood at US$1.119 trillion.

Woolfolk said the ongoing eurozone debt crisis further contributed to investor anxiety in June, particularly for private investors. But so did weak US macroeconomic figures, including jobs data that showed the pace of hiring slowing sharply in Q2. That unnerved global investors and made them more careful about buying growth-sensitive stocks and corporate bonds.

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