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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.