UPDATE 2-U.S. net long-term capital inflow slips in May

* Treasury, corporate bond purchases fall in May

* U.S. still sees long-term, overall inflows

* China cuts holding, official sources post record outflow
(Adds comment, detail)

By Steven C. Johnson

NEW YORK, July 16 (BestGrowthStock) – Foreigners in May bought
fewer long-term U.S. securities, including government and
corporate bonds, and China cut its U.S. Treasury holdings for
the first time in three months, the Treasury said on Friday.

Net long-term capital inflows into the United States fell
to $35.4 billion in May from a downwardly revised $81.5 billion
inflow in April.

Purchases of Treasury notes and bonds fell sharply, with
foreigners buying a net $14.9 billion in May after snapping up
$76.4 billion in April.

China cut its Treasury holdings by $32.5 billion to $867.7
billion, though it remained the largest single holder of U.S.
government debt. Japan, the second largest holder, also reduced
its Treasury stash by $8.8 billion to $786.7 billion.

Official — or government — investors were net sellers of
all U.S. assets in May to the tune of $38.8 billion, a record
according to Treasury. Private investors bought a net $56.2
billion of U.S. assets.

Though neither Treasury nor currency traders reacted to the
report, some analysts urged investors to watch future releases
for more evidence of weaker demand from foreign central banks.

“The pullback in foreign purchases of Treasuries may feed
concern on the ability of the U.S. to finance its deficits” at
a time when yields are at depressed levels, said Todd Elmer, a
senior currency strategist at Citigroup in New York.

The benchmark U.S. 10-year Treasury note ended May
yielding 3.29 percent and had fallen as low as 2.88 percent by
July, a 14-month low.

Nomura Securities rates strategist Stanley Sun, however,
noted that China was mainly a seller of Treasury bills and
actually bought a net $3 billion in long-term Treasuries.

OVERALL NET INFLOWS RISE

Net overall capital inflows into the United States, which
include short-term securities such as Treasury bills, edged up
to $17.5 billion in May from the prior month’s $13 billion.

Samarjit Shankar, managing director of global FX at BNY
Mellon in Boston, said the search for higher returns likely
soured foreigners on longer-dated securities.

“U.S. assets really haven’t been up there among the
preferences of portfolio managers. Emerging market equities and
such have been in greater demand,” he said.

“There does seem to be some willingness by central banks to
diversify, but it’s diversification away from both the dollar
and the euro toward the likes of the Canadian and Australian
dollars, and that’s consistent with the trend,” Shankar added.

After buying a net $10.1 billion of corporate bonds in
April, foreign investors became net sellers in May to the tune
of $9 billion. Equities also saw a mild net outflow of $432
million after attracting a $9.6 billion net inflow in April.

Net purchases of U.S. agency debt, however, rose to $27.4
billion in May from $14.3 billion the prior month. In May,
agencies traded between 24 and 29 basis points above U.S.
Treasuries.
(Additional reporting by Julie Haviv in New York; Editing by
Chizu Nomiyama and Leslie Adler)

UPDATE 2-U.S. net long-term capital inflow slips in May