UPDATE 1-Foreign holdings of U.S. Treasuries hit record high -data

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By Gertrude Chavez-Dreyfuss

NEW YORK, April 15 (Reuters) – Foreign holdings of U.S. Treasuries hit a record high in February before the novel coronavirus became a pandemic, data from the U.S. Treasury department showed on Wednesday, as foreign investors continued to snap up U.S government debt for yield.

Overall foreign holdings of U.S. Treasuries hit $7.066 trillion in February, from $6.857 trillion in January.

Japan’s Treasury holdings also rose to an all-time peak of $1.268 trillion, from $1.211 trillion in January. It remains the largest non-U.S. owner of Treasuries.

“It’s still yield-driven,” said Jon Hill, senior rates strategist at BMO Capital Markets, referring investors’ appetite for U.S. Treasuries.

“At the end of the day, Treasuries as of a few weeks ago were a high yielder. They’re less of a high yielder now to be sure, but even after the rally we have seen the last few months, 10-year Treasuries still offer 60 basis points over JGBs (Japanese government bonds),” he added.

China, the second largest holder of Treasuries, also increased its holdings to $1.092 trillion in February, from $1.078 trillion the previous month.

BMO’s Hill was surprised that Chinese holdings increased during the month, given that the coronavirus was already raging in China. News about the virus first came in late December.

The expectation was that China’s central bank would sell Treasuries to support its weakening currency, which has been undermined by the economic fallout from the virus.

Going forward, some analysts expect foreign central banks, especially those in emerging markets to sell their Treasury holdings and prop up their currencies to combat the impact of the pandemic.

Data also showed U.S. Treasury inflows on a transaction basis totaled $4.88 billion in February, from inflows of $25.59 billion in the prior month. U.S. Treasuries showed inflows for three straight months.

U.S. benchmark 10-year Treasury yields ended February at 1.126%.

The report also showed foreigners bought $11.516 billion in U.S. stocks in February, from purchases of $2.36 billion the previous month.

Foreign investors, however, sold $20.515 billion in U.S. corporate bonds in February, after selling $31.812 billion in January, according to the data. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Sandra Maler and Lisa Shumaker)

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