Wednesday, August 15, 2007

U.S. Net Foreign Asset Purchases Hold Near Record

- International buying of U.S. securities unexpectedly held close to an all-time high in June as record central bank purchases offset a third month of Chinese sales of Treasuries.

Holdings of equities, notes and bonds slipped to a net $120.9 billion, from $126 billion the previous month, the Treasury Department said in Washington. Including short-term assets such as bills and non-market trades such as stock swaps, investors bought a net $58.8 billion, down from $107.3 billion.

International purchases of U.S. government debt, mostly by central banks, doubled in June even as the two biggest overseas holders of Treasuries -- China and Japan -- reduced their totals. The jump in official buying also outweighed slowing investment in stocks.

``There seems to be sufficient proof that China has a weaker appetite for Treasuries,'' said David Powell, a currency strategist at IDEAglobal in New York. ``Fortunately for the Treasury Department, that slack is being picked up by other central banks.''

Economists predicted international investors would buy a net $62.8 billion of long-term securities in June, based on the median estimate of 14 analysts in a Bloomberg News survey.

The dollar rose to its highest level of the day after the report. The U.S. currency traded at $1.3493 per euro at 10:21 a.m. in New York, from $1.3533 late yesterday.

Flight to Safety

International holdings of Treasuries increased by $54.3 billion, compared with a gain of $21.6 billion in May. The yield on the benchmark 10-year note averaged 5.10 percent in June, compared with 4.74 percent in May.

The Treasury's reporting on long-term securities captures international purchases of U.S. government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy mortgages.

Chinese and Japanese investors decreased their holdings of U.S. government debt in June, while U.K. and Brazilian holdings rose, the Treasury said.

Japan, the largest foreign owner of U.S. Treasury securities, sold a net $2.9 billion, bringing holdings to $612.3 billion.

China, the second-largest holder, reduced its holdings for a third straight month, by $2.3 billion to $405.1 billion. China's share of all Treasury holdings abroad has risen to 18.3 percent this year, from 8.6 percent five years ago.

China has reduced its Treasury holdings for three straight months by a record amount of $14.7 billion, longest period of selling by China since November 2000.

`Concern' About China

``The fact that China isn't investing as much as in the past is a bit of a concern'' and ``something we have to keep a close eye on,'' Michael Woolfolk, senior currency strategist at Bank of New York Mellon in New York.

International holdings of U.S. stocks rose a net $28.8 billion, compared with net purchases of $42 billion in May. The Standard & Poor's 500 Index fell 1.8 percent and Dow Jones Industrial Average dropped 1.6 in June, their first monthly declines since February on speculation losses on subprime mortgages would deepen,

Holdings of agency debt increased a net $39.7 billion after a $27.5 billion net gain in May.

U.S. investors bought a net $27.8 billion of overseas assets in June, after purchasing $37.6 billion the month before.

Trade Gap

Private investors bought a net $94.8 billion in June, compared with a record $152.2 billion in May. Official purchases, including those by central banks, increased by a record $53.8 billion from $11.5 billion the prior month.

Foreigners bought a net $25.9 billion of corporate bonds, compared with $72.6 billion in May.

Some economists say the difference between the U.S. trade gap and securities purchased by foreigners is an indicator of how easily the nation can finance its external obligations. The trade deficit in June shrank 1.7 percent to $58.1 billion from a revised $59.2 billion, the Commerce Department said yesterday.

The current-account gap, a broader measure of trade that includes investment income and transfers, swelled to a record $811.5 billion in 2006.

The U.K., which, through London, acts as a transit point for international investors, especially those in the Middle East, bought a net $22.5 billion, bringing holdings to $190.1 billion. Brazil increased its investments in Treasuries by $12 billion, to $93.6 billion.

Major oil exporters -- a group that includes the members of the Organization of Petroleum Exporting Countries, Ecuador, Bahrain, Oman and Gabon -- bought a net $1 billion of U.S. securities.

Caribbean banking centers, which analysts link to hedge funds, increased their holdings by a net $1.1 billion, bringing their total to $49.1 billion.

To contact the reporters on this story: John Brinsley in Washington at ; Kevin Carmichael in Washington at

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