Treasuries Suffer First Outflows Since 2021 in September Rout

The savage sell-off that hit Treasuries in prior months was driven by concerns a buyers’ strike had hit the $26 trillion bond market. It’s now confirmed: at least one set of investors headed for the exits back in September.

Foreign investors sold $1.7 billion more worth of Treasuries than they bought during that month, data from the US Treasury department shows. This marked the first net outflows since May 2021 and capped the weakest three months for foreign demand since the period ending May 2020.

Treasuries roared back this month as softer US inflation data and signals of a cracking labor market fired up speculation that the Federal Reserve’s tightening cycle is done. Demand also benefited after yields reached the highest levels in more than a decade in the wake of that sell-off in September and October.

“Lower inflation, high yields and the comfort that central banks are essentially done hiking are compelling drivers for investors to wade back into fixed income now,” said Prashant Newnaha, a rates strategist in Singapore at TD Securities Inc. “September was a time when Treasuries were not on a lot of investors’ menus as markets faced issues digesting a surge in issuance at a time when strong growth signaled a need for higher real rates and term premiums.”