Friday, September 17, 2010

Foreigners resume U.S. asset buying in July

NEW YORK: Foreigners resumed purchases of U.S. securities in July, reversing the prior month's net outflow, and China and Japan both added to holdings of U.S. government debt, the U.S. Treasury Department said Thursday, Sept 16.

Overseas investors bought a net $63.7 billion, including short-term instruments such as Treasury bills. That reversed a revised net outflow of $5.2 billion in June. Net long-term capital inflows rose to $61.2 billion from $44.4 billion.

Uncertainty about the global economic outlook and lingering concern about heavily indebted European countries and euro zone banks enhanced the appeal of U.S. assets in early summer.

China, the biggest holder of U.S. Treasury debt, increased its holdings by $3 billion to $846.7 billion. It was China's first increase in three months. Japan, the No. 2 Treasury holder, bought a net $17.4 billion in U.S. government debt, bringing its total to $821 billion.

Both countries provide crucial financing for U.S. deficits. China's purchases also keep the value of its yuan currency from appreciating too quickly against the dollar. Beijing fears a strong yuan would hurt its exports and arrest economic growth.


Overall Treasury purchases slipped to $30 billion in July from $33.3 billion, but analysts said those numbers should rise in the months ahead now that Japan has also started selling yen in currency markets for the first time in six years.

Dealers said the Bank of Japan spent more than $20 billion on Wednesday to weaken the yen and speculated that much of the dollars accumulated would find their way into U.S. Treasuries.

"It's definitely going into Treasuries, it's just a question of where in the curve," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York. "We look forward to some big numbers in the months ahead."

Most of the buying in July was in U.S. corporate debt and equities. Foreigners bought a net $13.9 billion in corporate bonds after selling a net $13.5 billion in June. They were net buyers of equities to the tune of $12.5 billion, reversing June's $4.1 billion net outflow.

"Private flows are nice and strong and, most importantly, are well-rounded," Ruskin said. "As we get past the crisis, you're seeing a broadening out of capital flows, and that's encouraging for the dollar."

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