- The Washington Times - Tuesday, August 18, 2009

Foreign investors significantly increased purchases of long-term American financial assets in June, easing concerns that their appetite for securities would wane as the U.S. budget deficit soared toward record levels.

Overall, net foreign purchases of long-term securities totaled $91 billion in June, compared with a negative $19 billion in May, the Treasury Department reported Monday. U.S. long-term securities include corporate equities, Treasury notes, and bonds issued by the Treasury, government agencies (such as Fannie Mae) and corporations.

Foreign holdings of long-term U.S. securities jumped by $124 billion in June, the biggest monthly rise since October 2007. In May, foreign holdings increased by only $8 billion. American investors added $33 billion worth of foreign securities to their portfolios in June, resulting in net foreign purchases totaling $91 billion.

U.S. Treasury bonds and notes, whose interest rates rose in June, accounted for $100 billion of the $124 billion increase in foreign holdings of U.S. securities. It was the biggest monthly rise in foreign purchases of Treasury debt since record-keeping began in 1977. Private investors accounted for $78 billion of the $100 billion increase, while “official” investors, such as foreign governments or their central banks, added $22 billion in U.S. Treasury debt to their portfolios.

June’s $100 billion increase in foreign holdings of Treasury debt stood in stark contrast to the $23 billion decline in May.

“The rise in Treasury yields that occurred in June caused foreigners to buy $100 billion worth of U.S. Treasury securities, casting doubt on the notion that foreign investors will shun U.S. bonds,” said Jay H. Bryson, global economist for Wells Fargo Securities.

Interest rates on 10-year Treasury notes increased from 3.29 percent in May to 3.72 percent in June, according to Federal Reserve data.

“Despite a number of foreign official statements venting concerns about the strength of the U.S. dollar and the U.S. fiscal situation, underlying demand for U.S. securities remains fairly healthy,” said Brian Bethune, chief U.S. financial economist for IHS Global Insight.

In recent months, officials in China and Russia have repeatedly expressed concern over the long-term value of their U.S. investments as America’s fiscal situation has markedly deteriorated.

The Congressional Budget Office has projected that federal debt held by the public will rise from less than $6 trillion at the end of fiscal 2008 to more than $17 trillion at the end of fiscal 2019.

In June, China, which is the biggest foreign holder of Treasury debt, reduced its portfolio by $25 billion to $776 billion. Russia reduced its holdings from $125 billion to $120 billion.

Those reductions were more than offset by Japan, whose holdings of Treasury securities increased by $35 billion to $712 billion in June, and by Britain, whose holdings jumped more than $50 billion to $214 billion.

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