Global Investing

from MacroScope:

Foreign investors still buying American

Overseas investors have yet to sour towards U.S. assets despite high government debt levels, according the latest figures on capital flows.

Including short-dated assets such as bills, foreigners snapped up $107.7 billion in U.S. securities in February, following a downwardly revised $3.1 billion inflow for January. At the same time, the United States attracted a net long-term capital inflow of just $10.1 billion in February after drawing an upwardly revised $102.4 billion in the first month of 2012.

The data showed China boosted purchases of U.S. government debt for a second month in February, but also some waning of demand for longer-dated securities.

Still, recurring fears that foreign investors might be scared off by high levels of U.S. debt have thus far proven overdone. Writes Millan Mulraine at TD Securities:

Overall, the massive foreign flow into U.S. assets in March suggests that US securities continue to enjoy healthy global appetite in time of fear (Treasuries) and times of hope (equities). The reallocation from Treasuries to shorter-term securities in February is broadly consistent with the risk-on tone that prevailed during the month, reversing the trend of the past few months, when concerns in Europe resulted in the flight to quality.

Retail threat to euro zone bond markets

Because of the peripheral euro zone bond implosion, many European bond market funds have suffered losses this year. JP Morgan says a major risk to European bond markets stems from liquidations by retail investors (aka Mrs Watanabe from Europe).

“Retail investors who bought bond funds as a savings vehicle are now experiencing capital losses on their holdings… Retail investors’ fund flows tend to be a function of past performance,” the bank says.

According to year-to-date performance of 556 bond funds that invest in Western European bonds, as many as a third have negative returns. The 7 funds with worse than -20% YTD performance have high exposure to Greek bonds (no doubt).