US Treasuries See Record Foreign Inflows in August -Treasury Data

NEW YORK, Oct 18 (Reuters) – Foreign inflows into U.S. Treasuries hit a record high in August, U.S. Treasury Department data showed on Tuesday, as investors speculated about a Reserve pivot federal government away from aggressive tightening.

The data showed foreign investors poured an all-time high of $174.2 billion into US Treasuries, up from $23 billion in July.

The aggregate data, however, is a lagging indicator and the numbers are often out of date. Analysts, however, scrutinize this report to spot trends in foreign purchases of US assets.

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That said, it was in August that the July inflation figures were released, showing that price pressures from the consumer and producer sides eased more than expected for the month. Consumer prices in the United States did not rise in July due to a sharp drop in gasoline costs, offering the first notable sign of relief for Americans who have seen inflation climb over the past two last years.

Investors at the time had speculated that the Fed would moderate the pace of rate hikes, an idea that was dashed at the central bank’s rally in Jackson Hole in late August. Fed Chairman Jerome Powell at the meeting reinforced the Fed’s commitment to stamping out inflation.

Foreign inflows, however, did not match the price action of Treasuries. The benchmark 10-year Treasury yield started August at 2.605% and ended the month at 3.110%, an increase of 50 basis points, suggesting that investors were selling Treasuries, not purchases.

The report also showed that Japan’s holdings of Treasuries fell to $1.199 trillion in August from $1.234 trillion the previous month. Japan, which has reduced its reserve of US government debt for a second consecutive month, remains the largest non-US holder of Treasuries.

Central banks have been known to sell their Treasury holdings to defend their struggling currencies.

And the yen struggled mightily against a robust US dollar which surged on strong Fed rate hikes. Since the start of the year, the yen has plunged nearly 23% against the greenback. For the month of August, the yen depreciated by 4% against the dollar.

China, on the other hand, slightly increased its holdings of Treasuries to $971.8 billion from $970 billion in July, up for a second consecutive month.

Overall, foreign holdings of Treasuries reached $7.509 trillion in August from $7.501 trillion in July, the data showed.

In other asset classes, foreigners sold US stocks in August for an eighth consecutive month to the tune of $26.85 billion, compared with outflows of $60.32 billion in July. The July release was the biggest since March.

US corporate bonds recorded inflows of $9.45 billion in August, up slightly from inflows of $8.78 billion in July. Foreigners have been net buyers of US corporate bonds for eight consecutive months.

Treasury data also showed that US residents again sold their holdings of long-term foreign securities, with net sales of $22.7 billion in August, compared with sales of $27.2 billion in the month. previous.

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Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci

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