Returning U.S. Appetite for Foreign Debt Dents Dollar's Fortunes

(Bloomberg) -- After years of shedding foreign debt, U.S. investors reversed course by buying in February -- which could portend more pain ahead for the dollar if such activity continues.

U.S. accounts added roughly $3.7 billion of foreign bonds in February for the first net inflow since November 2015, according to data released by the Treasury Department on Monday. The switch by U.S. investors from selling foreign debt to purchasing overseas securities is likely one factor behind the dollar’s 3.5 percent slide since the start of December, according to Deutsche Bank strategist Alan Ruskin.

“For December 2017 to February 2018, the dollar appears to have suffered as much from less U.S. selling of its foreign bond portfolio than any other factor,” Ruskin wrote in a note Tuesday.

U.S. investors have for several years been strong sellers of foreign bonds, but dialed back the pace to sales of $1.4 billion in December and $8 billion in January, compared with $21.3 billion in November.

That slowdown has acted as a drag on the greenback as it’s curbed the pace at which U.S. investors convert the proceeds of foreign bond sales back into dollars, according to Ruskin.

Should the appetite for foreign bonds persist, it could help push the dollar out of the tight range it’s been confined to since late February.

©2018 Bloomberg L.P.

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