June 15, 2018 / 9:18 PM / 6 months ago

UPDATE 1-Foreigners sell U.S. Treasuries in April, led by central banks -data

(Adds details, analyst comment, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, June 15 (Reuters) - Foreigners sold Treasuries for a second consecutive month in April, as holdings of central banks and government institutions declined, data from the Treasury Department showed on Friday.

Analysts said foreign central banks, especially those in emerging markets, sold Treasuries to prop up their weakening currencies.

Overseas investors sold $4.78 billion in U.S. Treasuries in April, following outflows of $4.92 billion the previous month.

In addition, major holders of U.S. Treasuries showed a decline in holdings to $6.17 trillion in April, the lowest since December.

Those countries whose holdings declined included China, whose Treasuries portfolio fell to $1.18 trillion in April after posting increases in March and February. China though is still the largest non-U.S. holder of Treasuries.

This could well be the effect of a brewing trade war between the United States and China, analysts said. U.S. President Donald Trump announced his plan to impose hefty tariffs on imported steel and aluminum to protect U.S. producers on March 1. Not coincidentally, Trump on Friday said he was pushing ahead with hefty tariffs on $50 billion of Chinese imports. China immediately vowed to retaliate.

Data also showed Russia’s holdings showed a massive drop to $48.7 billion from $96.1 billion in March. Treasury holdings of Turkey, Mexico, India, and Taiwan all declined during the month.

“This reflects emerging market wobbles,” said Gennadiy Goldberg, interest rates strategist, at TD Securities in New York. “The central banks sold their Treasuries to defend their currencies.”

The dollar has strengthened so far this year against a host of emerging market currencies such as the Turkish lira, Mexican peso, and Indian rupee amid political tensions in some of these countries, and as the Federal Reserve continued to raise interest rates.

Japan’s holdings of Treasuries, meanwhile, declined as well in April to $1.031 trillion, their lowest level since October 2011, data showed.

TD Securities’ Goldberg said the decline in Japan’s holdings was not a surprise as Japanese investors have long been diversifying away from U.S. Treasuries.

Japanese investors typically buy Treasuries on a cross-currency hedged basis and the advantage has gone against U.S. debt because of the rise in Libor cost.

U.S. stocks, meanwhile, saw inflows of $5.93 billion in April, from outflows of $24.15 billion in March.

Data further showed offshore investors purchased $93.9 billion in long-term U.S. assets in April, after buying $61.8 billion the previous month. Including shorter-dated securities, foreigners bought $138.7 billion in April, from sales of $43.6 billion in March. (Reporting by Gertrude Chavez-Dreyfuss; editing by Grant McCool)

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