UPDATE 1-US overall net capital inflow falls in Oct

(Adds detail, comment, byline)

By Steven C. Johnson

NEW YORK, Dec 15 (BestGrowthStock) – Foreigners cut purchases of
U.S. securities in October, though China still raised its U.S.
government debt holdings to an 11-month high worth more than
$900 billion, the U.S. Treasury Department said on Wednesday.

The United States attracted a net long-term capital inflow
of $27.6 billion in October. That was the lowest total since
January and below a downwardly revised $77.2 billion inflow
reported for September.

Net overall capital inflows, which include short-term
instruments such as Treasury bills, fell to $7.5 billion from a
downwardly revised $80.1 billion the prior month.

The data “paints a picture of decent foreign demand for
U.S. assets, including equities, but some notable official
wariness over the back end of the Treasury curve,” said Alan
Ruskin, global head of currency strategy at Deutsche Bank.

Overseas demand for Treasuries fell by $55.4 billion in
October to $23.5 billion, and official buyers — mostly foreign
central banks — were net sellers to the tune of $1 billion.

Treasury yields were low in October as markets braced for
the Federal Reserve to start a bond-buying program designed to
bring down long-term interest rates and boost growth.

The Fed launched its program in November, pledging to snap
up $600 billion worth by the middle of 2011, though long-term
yields have surprised markets this month, with the 10-year note
climbing to a seven-month high on Wednesday.

Ruskin said foreigners’ fading demand for Treasuries in
October was “prescient” and reflected “some trepidation to jump
into Treasury notes and bonds, and perhaps some desire on their
part to remain nimble.”


China, the United States’ largest foreign creditor,
nonetheless increased its Treasury holdings by $23.3 billion to
$906.8 billion, the highest since November 2009.

Japan, the second largest foreign U.S. creditor, increased
holdings by $12.8 billion to $877.4 billion, the largest total
in at least a year.

But while China’s total Treasury holdings were 3.4 percent
lower than they were a year ago, Japan’s were up 18.1 percent.
Low Japanese interest rates and sluggish growth kept demand for
U.S. assets high in 2010.

Authorities in Tokyo also intervened in currency markets in
September for the first time since 2004 to drive down the value
of the yen against the dollar. Analysts said most of the
acquired dollars were recycled into Treasury debt.

For a graphic on foreign holdings of U.S. Treasuries, see:

Weaker foreign demand for U.S. assets in October was also
partly offset by stronger domestic purchases, analysts said.

“Domestic households are stepping up their buying of
Treasuries in recent months so the bond market should be doing
OK even if foreigners are buying less,” said Justin
Hoogendoorn, fixed income strategist at BMO Capital Markets.

Among other assets, net foreign purchases of U.S. stocks (Read more about the stock market today. )
fell by $4.7 billion to $16 billion, while net corporate bond
buying edged up to $1.1 billion in October, reversing net
selling the prior month to the tune of $63 million.

But all buying in both cases was by private accounts.

(Additional reporting by Richard Leong; Editing by Chizu

UPDATE 1-US overall net capital inflow falls in Oct