Foreign Purchase of U.S. Securities Surge

Demand driven by a sharp increase in overseas demand for U.S. Treasury securities, led by China

Reversing an outflow the previous month, foreign purchases of U.S. long-term securities surged in June to more than $90 billion, the Treasury said on August 17. Net long-term security transactions in June climbed to $90.7 billion from negative $19.4 billion in May.

The surge was primarily driven by a sharp increase in overseas demand for U.S. Treasury securities, led by China, data showed. China, the top holder of U.S. debt, has raised concerns in recent months about the mushrooming U.S. debt, for fear it could erode the value of the dollar and its Treasury holdings. U.S. officials have traveled to Beijing to reassure Chinese leaders that their investments in U.S. Treasuries were safe despite the deficit, which they pledged to cut. Mainland China's holdings of U.S. Treasury securities fell to $776.4 billion in June from 801.5 billion in May.

Japan, the second-largest holder of Treasury debt, raised its holdings to $711.8 billion from $677.2 billion.

"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," commented Brian Bethune, chief U.S. financial economist for IHS Global Insight.

He said that overall U.S. capital flows in the second quarter reflected significantly better conditions in the international capital markets, "and there are few signs of any diminished foreign interest in U.S. long-term securities and equities."

Based on the latest official data, the U.S. budget deficit for the first 10 months of fiscal year 2009, which began October 1, reached $1.3 trillion, close to $880 billion greater than the deficit recorded through July 2008.

The Congressional Budget Office (CBO) said two weeks ago that outlays rose by almost $530 billion, or 21%, and revenues fell by more than $350 billion, or 17%, compared with the amounts recorded during the same period last year.

China, the top holder of U.S. debt, has raised concerns in recent months about the mushrooming U.S. debt, for fear it could erode the value of the dollar and its Treasury holdings. U.S. officials have traveled to Beijing to reassure Chinese leaders that their investments in U.S. Treasuries were safe despite the deficit, which they pledged to cut.

Copyright Agence France-Presse, 2009

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