Foreign investors sell $22.5B U.S. debt

Treasury Department report shows overseas investors sold U.S. bonds in May as risk tolerance increased.

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NEW YORK (Reuters) -- Foreign investors sold U.S. Treasurys in May, as investors grew more comfortable with risky trades in stocks, commodities, and higher-yielding currencies, a Treasury Department report showed Thursday.

U.S. Treasury selling amounted to $22.5 billion in May after inflows of $41.89 billion in April.

Overall, net capital outflows increased to $66.6 billion from a revised outflow of $38 billion in April.

Excluding swaps, international investors sold a net $19.8 billion in long-term U.S. securities, reversing an inflow of $11.5 billion in April. This is a key gauge of foreign investor appetite because they exclude short-term transactions.

"Better stock market performance had led to easing risk aversion in May and that has led to losses in the dollar," said Brian Dolan, chief currency strategist at in Bedminster, New Jersey.

"But this data may be completely reversed in June because of the huge Treasury issuance last month and we could see foreign investors piling back into Treasurys. May's capital flows report if anything is an anomaly."

May was also a month where U.S. data began to show some improvement as the government's stimulus measures started filtering into the economy.

The dollar showed little reaction to the capital flows data, however, as did the Treasury market. The euro was up slightly versus the dollar at $1.4123.

The ICE Futures dollar index, a measure of the greenback's value against a basket of six other major currencies, fell 6.6% in May but recovered 1.2% in June.

Despite a rise in risk appetite, China, the largest holder of U.S. Treasury securities, continued to accumulate holdings of government bonds in May. It held $801.5 billion, up from $763.5 billion in April.

But Japan, the second-largest holder, reduced its total to $677.2 billion from $685.9 billion the previous month.

Foreign investors piled into U.S. equities, buying $16.73 billion in stocks in May, up from $4.58 billion in April.

Corporate bonds also saw minor inflows of $940 million after April's outflow of $9.73 billion, as did agency bonds. Foreigners snapped up $12.81 billion in U.S. agencies after selling $2.48 billion in April.

Private foreign investors sold a total of $82.2 billion of U.S. assets in May, almost double outflows of $43.3 billion the previous month. To top of page

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