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By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 15 (Reuters) - Foreign investors sold a record amount of U.S. Treasury bonds and notes for the month of December, according to U.S. Treasury Department data released on Friday, amid wide perceptions that month that the Federal Reserve would still raise interest rates multiple times in 2019.
Foreigners sold $77.35 billion in U.S. Treasuries in the month, after net sales of $13.2 billion in November. December’s outflow was the largest since the U.S. government agency started recording Treasury debt transactions in January 1978.
“I think in December there was still a lot of talk that the Fed would still raise interest rates this year,” said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.
The Fed on Dec. 19 raised rates as expected and signaled a few more hikes this year, while acknowledging the impact of ongoing market volatility and potential slowdowns around the world.
Rupert said the Fed “didn’t really change its tune” until mid-to-late December, which made Treasuries less attractive.
She also noted that bonds in general were not really in demand based on just the auction statistics.
Benchmark U.S. 10-year Treasury yields, however, have fallen despite the selling. Yields on U.S. 10-year notes at the beginning of December were 3.01 percent, ending the month at 2.69 percent.
Analysts said the decline in yields in December could be attributed to the increase in Treasury holdings by foreign investors overall. Data showed non-U.S. holders of Treasuries had $6.26 trillion in December, from $6.199 trillion in November.
Data also showed Chinese holdings of U.S. Treasuries increased in December, after declining for six straight months. China had $1.123 trillion in U.S. Treasuries in December, up from $1.121 trillion the previous month.
The world’s second-largest economy remains the largest holder of U.S. Treasuries outside the United States.
“At face value, one could suspect that a lot of the pain in China was sort of lessening,” said Action Economics’ Rupert. “There was more optimism on U.S.-China trade talks behind the scenes.”
Japan’s holdings of U.S. Treasuries, meanwhile, also grew to $1.042 trillion in December, from $1.036 trillion in the previous month.
The report also showed foreigners in December sold $48.3 billion in net long-term U.S. securities, after buying for five straight months.
Foreigners also sold $18.21 billion in U.S. stocks in December, from net sales of $5.6 billion the previous month. Foreign investors have sold U.S. equities for eight straight months.
Reporting by Gertrude Chavez-Dreyfuss in New York Editing by Diane Craft and Matthew Lewis