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Foreign investors finance US debt by 2b a day Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000103&sid=aJPybti.QRW4&refer=usForeign investors and central banks finance the gap by about $2 billion a day through purchases of Treasury bonds, stocks and other securities.
http://www.bloomberg.com/apps/news?pid=10000103&sid=aJPybti.QRW4&refer=us
Foreign Holdings of U.S. Assets Rose in July to $87.4 Bln
Sept. 16 (Bloomberg) -- International investors increased their net holdings of U.S. assets by $87.4 billion in July, suggesting that high current-account and budget deficits haven't dimmed their view of the world's largest economy.
The increase in net holdings of Treasury notes, corporate bonds, stocks and other financial assets was the fourth straight, the first time that's happened since 1985. July's figure compares with a net purchase of $80.9 billion in June. The median estimate of three economists surveyed by Bloomberg News was for a net purchase of $60 billion.
The increase was led by government agency debt and U.S. Treasury securities, with net demand from private investors at a record. The net purchases were the highest since January. The U.S. economy expanded 3.6 percent in the second quarter from a year earlier, more than any other country in the Group of Seven industrial nations.
``For all our warts, we're still the best game in town,'' Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, said before the report.
Investors monitor the data as a gauge of demand for dollars. The currency swung by about an average three-quarters of a cent against the euro on the day of each monthly report in 2004. The dollar rose about 11 percent against the euro so far this year and traded at $1.22 per euro today in New York.
The U.S. current account deficit, a broad measure of transactions with the rest of the world, narrowed last quarter for the first time since 2003, to $195.7 billion, the Commerce Department said today. Foreign investors and central banks finance the gap by about $2 billion a day through purchases of Treasury bonds, stocks and other securities. The U.S. trade deficit narrowed to $57.9 billion in July from $59.5 billion in June on record exports.
U.S. Investments
The major U.S. stock indexes gained in July, with the Standard & Poor's 500 Index rising 3.6 percent that month. The average yield on the benchmark 10-year note was 4.15 percent in July compared with 3.99 percent in June.
``U.S. Treasuries are still the safest bet out there,'' Michael Gregory, an economist at BMO Nesbitt Burns in Toronto, said before the report.
The total net figure in today's report comprises Treasury notes and bonds, debt of so-called agencies such as Fannie Mae and Freddie Mac, corporate bonds and stocks, and the stocks and bonds of foreign companies bought from U.S. investors. The report is one measure of U.S. capital flows and doesn't include foreign direct investment and bank deposits.
Total purchases of domestic securities were $1.279 trillion in July, while total sales were $1.178 trillion.
Treasury Holdings
Purchases of Treasury holdings rose by a net $28.5 billion, while demand for agency debt increased by a net $37.8 billion. Foreigners increased net stock holdings by $10.1 billion. Demand for U.S. corporate bonds rose by $25 billion from the prior month. Foreigners also had net sales of $5.1 billion in foreign bonds and net sales of $8.9 billion in foreign stocks traded in the U.S.
Investors abroad held $2.034 trillion of the marketable U.S. Treasury securities outstanding during the month, according to Treasury figures. Excluding the foreign bonds and stocks, the total investment in long-term domestic securities was $101.4 billion in July, with private foreign investment accounting for a record $91 billion of that. Central banks and other agencies accounting for the rest.
Regions
Japan, the largest foreign holder of government securities, bought a net $2 billion in assets in July. Japan accounts for $683 billion of Treasuries held by overseas investors, followed by China with $242 billion and the U.K. with $160 billion.
China had been buying dollars to ensure that its currency, the yuan, stayed at about 8.3 to the dollar. China's government ended the peg in July, allowing the yuan to appreciate by around 2.1 percent against the dollar. Greater flexibility in China's currency policies may result in fewer purchases of U.S. securities over time.
Caribbean holdings, which analysts link to hedge funds located in the region, fell by $3.8 billion to a total of $103.4 billion.
Before today's figures, international investors purchased an average net $38.1 billion in U.S. financial assets each month over the past decade. Over the last three years, the average was $59.5 billion a month.
Economic Growth
The U.S. economy has grown by 3 percent or more at an annual rate for the last nine quarters, the longest streak in two decades.
Canada grew 2.6 percent last quarter from a year earlier, and Japan's economy expanded 2.1 percent in the same period. The G-7 also includes Germany, the U.K., France and Italy, whose economies all expanded less than 1.8 percent.
The Federal Reserve on Aug. 9 raised the benchmark U.S. interest rate to 3.5 percent, the highest since 2001, to head off inflation as economic growth accelerates. Rising U.S. interest rates make dollar assets more attractive to investors abroad, especially when rates are not rising in rival countries.
Among large industrial countries, only the U.K. has a higher central bank interest rate, at 4.5 percent.
Last Updated: September 16, 2005 09:00 EDT
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