UPDATE 1-U.S. Treasuries' foreign inflows in March hit all-time peak -data

(Adds comment, details)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 17 (Reuters) - Foreign inflows to U.S. Treasuries posted a record high in March, with the bulk of flows coming from private investors, data from the U.S. Treasury showed on Monday.

On a transaction basis, foreign investors bought $118.87 billion in Treasuries in March, compared with an outflow of $65.46 billion the previous month. The February outflow was the largest since April 2020.

U.S benchmark 10-year Treasury yields started March with a yield of 1.415%, rising about 39 basis points to a peak of 1.776%, the highest since January 2020.

A more upbeat U.S. economic outlook and rising inflation pushed yields higher in March and spurred expectations that the Federal Reserve might raise interest rates earlier than what officials had suggested, which was not until at least 2024.

Analysts said as U.S. yields started to climb, foreign investors took advantage of the sharp decline in prices to buy Treasuries again.

"Yields reaching those peaks in March and kind of drifting lower over the latter part of the month... and you can kind of back out that a big part of that demand... came from overseas," said Ben Jeffery, U.S. rates strategist at BMO Capital in New York.

Foreign holdings of Treasuries overall declined to $7.028 trillion in March from $7.098 trillion in February, declining for three straight months. In January, foreign ownership of Treasuries gained the most in six months.

Japan's holdings of Treasuries fell for a second consecutive month in March to $1.24 trillion, from $1.258 trillion the previous month.

The decline was linked to the country's March fiscal year-end, in which Japanese investors tend to sell U.S. assets and repatriate proceeds for balance sheet purposes.

Japan remains the largest non-U.S. holder of U.S. government debt.

China's holdings of U.S. Treasuries also eased, by $1.1 trillion in March, from $1.104 trillion in February.

Data also showed U.S. corporate bonds had inflows of $43.1 billion in March, from $14.5 billion in February. The March inflows were the largest since May 2008.

"A lot of that has to do with the corporate supply we saw. It was a really heavy month for supply and given where spreads are, there was robust demand for corporate debt," said BMO's Jeffery. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese and Dan Grebler)