Foreign investors dumped U.S. government debt in April and were net sellers of all long-dated U.S. securities for the third consecutive month, the U.S. Treasury said on Friday.
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Selling was heavily concentrated in Treasury bonds and notes, with overseas investors unloading $54.5 billion, the first net outflow in seven months. Private investors alone sold $30.8 billion - the largest one-month outflow on record.
Overall, foreigners sold $37.3 billion in long-term U.S. securities, the largest outflow in at least three years. March's outflow was revised slightly to $13.4 billion.
"Demand for U.S. securities was much weaker in April," said Gennadiy Goldberg, U.S. strategist at TD Securities. He said the scope of Treasury sales was "somewhat surprising given the fresh bout of European uncertainty observed in the month," referring to a European Union rescue of Cypriot banks.
Official investors, including central banks, were also net Treasury sellers in April. China, the largest foreign U.S. creditor, slashed its holdings by $5.4 billion to $1.265 trillion. Japan sold $14 billion, leaving its total holdings at $1.114 trillion.
However, foreigners bought $23 billion of debt issued or guaranteed by the biggest U.S. mortgage financing agencies, including Fannie Mae and Freddie Mac .
Goldberg said that suggests "some foreign accounts may have been repositioning into agency securities in a reach for yield."
Indeed, the yield on 10-year benchmark Treasury notes fell as low as 1.67 percent in April as markets worried about the strengths of the U.S. recovery and fears that Cyprus' problems could worsen the euro zone's debt crisis.
"Somebody was buying (Treasuries) and I don't think it was the Fed alone," Goldberg said. "Some of it was a domestic flight to safety."
U.S. equities remained in demand in April, with foreigners snapping up $11.2 billion after buying $6.8 billion in March.
Including short-dated assets such as bills, overseas investors bought $12.7 billion in April compared with $2.1 billion in March.
(Reporting by Steven C. Johnson; Editing by Chizu Nomiyama and James Dalgleish)