According to the U.S. Treasury Department, foreign investors cut back their holdings of U.S. short-term Treasury bills in January by about -$44.4 billion (-18.6 – 25.8). They even cut back ownership of long-term U.S. corporate bonds by -$24.5 billion. Foreign investment into U.S. equities barely eked past the zero-mark, coming in at just +$4.5 billion.
Yet they poured $61.4 billion (60.8 + 0.6) into long-term U.S. treasury bonds.
There is only one scenario that will make this work out — a deflationary U.S. recession. This is because a period of rising interest rates (due to economic strength) or inflation (due to either good news, ie. economic strength, or bad news, ie. a weakening dollar and concerns over U.S. debt) would make this a horrendous trade.
To make matters even more strange, most of the long-term U.S. treasury buying was from private foreign investors. Official foreign government buyers accounted for just $0.6 billion out of $61.4 billion of buying.
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