International purchases of U.S. financial assets plunged 96 percent in September as confidence grew that Europe was beginning to solve its debt crisis and investors sold Treasuries following the Federal Reserve’s quantitative easing announcement.
Net buying of long-term equities, notes and bonds totaled $3.3 billion during the month, down from net purchases of $90.3 billion in August, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $50 billion of long-term assets, according to the median estimate.
The Federal Open Market Committee said Sept. 13 that it would undertake a third round of quantitative easing by purchasing mortgage-backed securities at a pace of $40 billion per month until labor markets improve substantially.
“QE3 certainly played its role in basically encouraging people to take risk and to some extent to short the dollar,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said. “The risk appetite was pretty strong overall, there were better places to park your money than the dollar,” and “there was a big rise in optimism regarding the euro zone.”
European Central Bank policy makers on Sept. 6 agreed to an unlimited sovereign bond buying program to wrest control of interest rates in the euro area and to stem the crisis in the region. ECB President Mario Draghi has called the euro “irreversible” and said the new government bond purchasing program will have effective conditionality attached.
Including short-term securities such as stock swaps, foreigners bought a net $4.7 billion in September, down from net purchases of $63.5 billion the previous month, the Treasury said.
China remained the biggest foreign owner of U.S. Treasuries in September after its holdings rose $300 million to $1.16 trillion, according to the Treasury.
Japan, the second-largest holder of U.S. Treasuries increased its holdings in September by $7.9 billion to $1.13 trillion, the highest on record, according to the Treasury.
Hong Kong, which is counted separately from China, decreased its holding by $6 billion to $135.7 billion.
Foreigners sold a net $17.3 billion of Treasuries in September, according to today’s report.
Estimates of foreign purchases of long-term U.S. assets in September ranged from net buying of $40 billion to $50 billion, according to five economists surveyed by Bloomberg before the report.
The Treasury Department’s data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies.