Demand for US assets jumps in June - China trims holdings of US Treasuries

Demand for US assets jumps in June - China trims holdings of US Treasuries
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: August 17 2009 16:10 | Last updated: August 17 2009 16:10
http://www.ft.com/cms/s/0/b47f7066-8b3e-11de-9f50-00144feabdc0.html


Foreign investors ramped up their purchases of US long-term securities in June, although China trimmed its holdings of US Treasury bonds during the month, according to data released by the Treasury on Monday.

The latest Treasury International Capital report, known as Tic, revealed that net foreign purchases of long-term US securities reached $90.7bn in June, compared with sales of $19.4bn in May.

Analysts attributed the renewed demand for US Treasuries to the slowdown in US equity markets during the month of June as investors sought safety while the US government sold debt to finance stimulus spending.

Much of the resurgence of capital inflows was due to greater demand for US Treasury bonds from private investors. Of the $123.6bn in US securities purchased, $78bn was US Treasury bonds and notes, $16.9bn was equities and $10.9bn was government agency bonds.

After two months of selling, Japan bought $32bn of US Treasuries, while Russia sold the most since March. China, Japan and the United Kingdom were the largest foreign holders of Treasury debt in June.

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

Meanwhile, domestic purchases of foreign securities also picked up, as investors took advantage of greater strength in emerging markets. US residents bought $32.9bn of foreign securities in June after purchasing $27.4bn the previous month.

“US purchases of foreign bonds and equities is also extremely buoyant for the third consecutive month,” said Alan Ruskin, strategist at RBS Greenwich Capital, noting that this could represent a new threat to the strength of the US dollar.

A key measure of net foreign capital outflow for the US, “monthly Tic flows”, eased in June but remained negative. Flows were negative $31.2bn compared with negative $65.7bn in May.