Foreign investors flee from short-term U.S. assets in favor of long-term assets

140px-US-DeptOfTheTreasury-Seal.svgRecent data from the U.S. Treasury showed foreign investors fled from short-term U.S. securities in September—ahead of the looming debt ceiling—in favor of long-term U.S. securities, the net purchases of which totaled $25.5 billion.

Foreign investors sold a net $106.8 billion of U.S. assets, marking the largest decrease since February 2009. Overall net foreign purchases of long-term securities totaled $12.1 billion in September.

Concerns over the possibility of U.S. debt default led to a spike in yields on short-term securities, which are seen as most vulnerable to issues should the U.S. government face difficulty in meeting its debt obligations, CNBC reports.

“There were some technical reasons why people didn’t want to own the short-end [of the government bond yield curve],” Bank of Singapore Chief Economist Richard Jerram said, according to CNBC. “If the U.S. defaults, it’s likely that is the area that would be affected.”

U.S. residents increased their holdings of long-term foreign securities by $36.8 billion. Foreign residents reduced their holdings in U.S. Treasury bills by $26.2 billion, while foreign holdings of all short-term U.S. securities and other custody liabilities fell by $28.2 billion. Banks’ net dollar-denominated liabilities to foreign residents also fell by $90.7 billion.

Data from the U.S. Treasury showed that China, the largest foreign holder of U.S. bonds, increased its Treasury holdings to $1.294 trillion in September. Japan also increased its holdings in September, CNBC reports.

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