International demand for U.S. stocks, bonds and other financial assets plunged in February as a more positive outlook for the global economy reduced the appeal of U.S. holdings as a refuge.
Net selling of long-term equities, notes and bonds totaled $17.8 billion during the month, compared with net purchases of $25.7 billion in January, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $40 billion of long-term assets, according to the median estimate.
“Investors were willing to take more risk because there was a building in optimism in the early part of the year that the global growth would recover and that the sentiment in Europe would continue to improve,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The European Commission’s index of executive and consumer sentiment rose to a nine-month high in February before dropping last month. Inconclusive elections in Italy and a bailout for Cyprus may have driven investors back to the relative safety of U.S. debt in March.
“Going forward, we are not going to see as much of Treasury selling because the Italian elections and the situation Cyprus probably spooked more investors,” Lyngen said.
Estimates of foreign transactions in long-term U.S. assets in February ranged from net buying of $20 billion to $65 billion, according to five economists surveyed by Bloomberg before the report.
U.S. stocks declined, sending the Standard & Poor’s 500 Index lower for a second day, after China’s economy grew at a slower pace than economists forecast. The S&P 500 dropped 1.4 percent to 1,566.08 at 1:06 p.m. in New York.
Treasury yields traded at almost the lowest level in four months as economic reports showed growth slowing in the world’s two largest economies. The 10-year note yield fell two basis points, or 0.02 percentage point, to 1.70 percent.
The Federal Reserve Bank of New York said its general economic index dropped to 3.1 this month from 9.2 in March. Readings exceeding zero signal expansion in New York, northern New Jersey and southern Connecticut.
The National Association of Home Builders/Wells Fargo index of builder confidence dropped to 42, the lowest since October, from 44 in March, the Washington-based group said today. Economists projected a reading of 45.
Including short-term securities such as stock swaps, foreigners bought a net $53.6 billion in February, down from net purchases of $116.8 billion the previous month.
China remained the biggest foreign owner of U.S. Treasuries in February after its holdings rose $8.7 billion to $1.22 trillion, according to the Treasury. Japan, the second-largest holder, lowered its holdings by $6.8 billion to $1.097 trillion.
Foreigners sold a net $122 million of Treasuries in February, according to today’s report, compared with purchases of $32.3 billion the month before.
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