March 7, 2018 / 9:33 PM / 5 months ago

Foreign demand for Treasuries cools as supply increases

NEW YORK, March 7 (Reuters) - Overseas investors bought 10.5 percent of the $289 billion in U.S. government debt sold in the second half of February, which included a near-record sales week, as the government boosted issuance to help fund President Donald Trump’s tax overhaul and a two-year budget deal, Treasury data released on Wednesday showed.

Demand from foreign investors cooled slightly from the previous auction. Purchases for the two-year note were lower, suggesting investors may be limiting their exposure over worries about rising interest rates.

Overseas investors bought more five- and seven-year notes than the previous month, though the amount issued in both cases was also higher. Analysts partly blamed the lackluster foreign appetite for Treasuries on a weak dollar, which has made holding U.S. debt less attractive.

Foreign buyers “have to factor into the yield the volatility of hedging the currency exposure,” said Aaron Kohli, interest rates strategist at BMO Capital Markets in New York.

“Volatility in the currency markets has scared a lot of the unhedged holders,” said Kohli.

Foreign investors, which span central banks to private investment funds, bought $4.901 billion of the latest two-year supply, versus $5.325 billion in the previous month, according to the Treasury’s auction allotment data.

They purchased $6.799 billion of the latest five-year supply, versus the $6.071 billion they purchased the previous month.

Foreign investors bought $7.461 billion of seven-year bonds versus $6.657 billion in January.

Issuance during the week of Feb. 19 was $258 billion, the second-largest amount ever over a three-day period and just $1 billion short of the record set in August 2010. (Reporting by Kate Duguid Editing by Susan Thomas)

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