Why Foreign Investors Flock To Safety Of Treasury Bills, ETFs
December 23rd at 6:00am by Tom Lydon
It is not just American investors seeking safety in short-term Treasury bills and related exchange traded funds (ETFs); foreign investors are throwing cash into U.S. securities in record volume. However, where the money is going specifically is telling.
Foreign investors are pulling money out – a calculated $50 billion in October – of higher-yielding bonds issued by government supported-entities Fannie Mae and Freddie Mac, which shows lingering doubt about the government’s sway in the recently hard-hit lenders, writes Floyd Norris for The New York Times. Over 12 months through October, foreigners only invested $65 billion into Fannie Mae and Freddie Mac, a low unrivaled since last seen in 1998.
The “implicit” government guarantee behind the agencies did not mollify doubt in foreign investors as shown in July and August were there was a net $64 billion of such securities. What may have mattered to overseas investors was a full backing behind the bonds after government nationalized the lenders.
In October, almost $91 billion came into Treasuries, a record high compared to all previous months. A good $56 billion worth of that money went into Treasury bills instead of longer-dated bonds and notes which drove interest rates on bills to historic lows and even into negative territory.
Current foreign investment into Treasuries may reach over half a trillion dollars a year.
