UPDATE 1-Foreigners buy U.S. Treasuries in June as market normalizes -data

(Adds analyst comment, details)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 17 (Reuters) – Foreigners bought U.S. Treasury bonds and notes in June, after selling them for three straight months, data from the U.S. Treasury Department showed on Monday, with investors encouraged by Federal Reserve actions to inject liquidity in the market through asset purchases.

On a transaction basis, foreign inflows into the U.S. Treasury market totaled $28.89 billion in June, compared with outflows of $36.69 billion the previous month. At the height of the coronavirus pandemic, the market saw Treasury debt outflows of $187.6 billion in April, and a record outflow of $310.79 billion in March.

In terms of monthly foreign holdings, foreign investors held $7.03 trillion in Treasuries in June, up from $6.978 trillion the previous month.

“The Treasury market really calmed down in June because of actions from the Fed and global central banks,” said Gennadiy Goldberg, senior rates strategist, at TD Securities in New York.

“The drawdowns in March and April were driven by a need to hold cash. It’s like withdrawing cash from the savings account and after things have calmed down, putting it back in,” he added.

Benchmark U.S. 10-year Treasury yields ended June at 0.65% , after earlier in the month hitting 0.90%, a roughly three-month high at the time.

Data also showed Japan remained the largest non-U.S. holder of Treasuries in June, with holdings rising to $1.261 trillion in June, from $1.260 trillion in May.

China’s holdings of Treasuries, however, declined by about $9 billion to $1.074 trillion in June, from 1.083 trillion the previous month. The country is the second largest non-U.S. holder of U.S. government debt.

TD’s Goldberg said China may not have necessarily sold Treasuries in June, noting that it may have used other custodians to purchase Treasuries. They have used Ireland before. Data showed Ireland’s holdings of Treasuries rose by $6 billion to $330.4 billion.

Offshore investors, meanwhile, purchased $28.522 billion of U.S. stocks in June, after buying a record $79.7 billion in May.

U.S. corporate bonds, however, saw an outflow to the tune of $16.6 billion in June, after inflows for three consecutive months.

Data also showed U.S. residents decreased their holdings of long-term foreign securities, with net sales of $34.2 billion in June.

Taking into account transactions in both foreign and U.S. securities, net foreign purchases of long-term securities were $113.0 billion for the month, compared with $118.1 billion in May, according to U.S. Treasury data. (Reporting by Gertrude Chavez-Dreyfuss; editing by Chizu Nomiyama and Richard Pullin)

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