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US Oct net inflows soar to record $286.3 bln

Foreigners snapped up a net $286.3 billion in US securities in October, including short-term instruments such as Treasury bills. It was higher than September’s revised inflow of $142.6 billion and more than enough to cover the month’s $57.2 billion trade deficit.

However, net long-term capital inflows, excluding swaps, fell to $1.5 billion in October, compared with revised inflows of $65.4 billion the previous month.

Analysts said the only reason there was still an inflow of long-term capital was a large repatriation of US assets from abroad, with $14.5 billion in bond repatriation and $21.8 billion in equity flows coming back into the United States. Equity inflows were mostly a result of European stocks, they added.

‘The main conclusion is that dollar strength in October was built on short-term flows, which is a poor foundation for long-term strength,’ said Alan Ruskin, chief international strategist, at RBS Global Banking and Markets in Greenwich, Connecticut.

‘The unwind of some of these flows may well be a factor in the most recent weakness and the latest data will at the margin further undermine dollar sentiment.’

The dollar reacted little to the data, given that the report is two months old. The euro was still up big on the day, rising 1.4 percent to $1.3554 EUR.

Private flows totaled $274.5 billion in October, up from $125.3 billion the previous month. Official flows slipped to $11.9 billion from $17.3 billion in September.

Foreigners sold $50.22 billion in agencies in October, a reversal from purchases of $6.17 billion the previous month, when the US government announced it would take over mortgage finance agencies Fannie Mae and Freddie Mac.

They also sold corporate bonds totaling $13.10 billion, compared with sales of $8.4 billion in September.

Foreign investors also sold US equities amounting to $6.12 billion compared with inflows of $11.52 billion in September.

But foreigners continued to buy US Treasuries, with purchases totaling $34.67 billion compared with inflows of $20.74 billion the previous month.

China, the largest holder of US Treasury securities, raised its holdings of government bonds in October. It held $652.9 billion, up from $587.0 billion in September.

Japan, the second-largest holder, raised its total to $585.5 billion from $573.2 billion the previous month.