"Investors seem to be moving money outside of the U.S., which leads us to believe they are planning for a continual U.S. dollar decline," said Mark Meadows, currency strategist at Tempus Consulting in Washington.
"What they are saying," he added, "is they are not going to receive as much in return as it will cost them to hold dollars."
Economists had expected net foreign purchases of long-term securities of $60 billion, according to a Reuters poll. U.S. capital markets would have needed to attract nearly $58 billion of inflows in order to cover the August trade deficit.
The net sales of $163 billion, which includes short-term securities such as Treasury bills, was the biggest since March 2001, when the Treasury Department recorded net sales of $42.3 billion.
August saw the intensification of a global credit crisis sparked by mounting losses on bonds backed by risky U.S. mortgages.
Official foreign entities such as central banks dramatically increased net sales of Treasury bonds, unloading a net $29.7 billion in August compared with net sales of $6.9 billion in July.
Japan and China, the top two holders of U.S. Treasury debt, were both sellers in August. By month-end, Japan held $585.6 billion, down from $610.4 billion in July. China cut holdings to $400.2 billion in August from $409 billion in July.
But, including private foreign accounts, the data showed net sales of Treasuries of $2.59 billion, less than the $9.37 billion of net sales seen in July.
International investors also sold a net of $1.2 billion in U.S. corporate bonds in August and a net of $40.64 billion in U.S. equities, a sharp reversal from net purchases of $21.2 billion the prior month.
Foreigners did buy a net $21 billion of short-term U.S. Treasury bills, which analysts said reflects a defensive posture in the face of a deepening credit and housing crisis.