Foreign Demand for Long-Term US Securities Rises

Foreign demand for long-term U.S. financial assets rebounded in June even though China and Russia trimmed their holdings.

The Treasury Department said Monday that foreigners purchased $90.7 billion more in long-term U.S. securities than they sold in June. That's a significant rebound from May when they sold $19.4 billion more than they purchased.

"There is little evidence in recent (Treasury) reports to suggest that foreign investors are growing weary of buying U.S. securities," Jay Bryson, a global economist at Wells Fargo Securities, wrote in a note to clients. The increased appetite for Treasury securities was partly because their yields rose in early June, he added.

The Treasury is auctioning record amounts of debt to cover what it estimates will be a $1.85 trillion budget deficit this year. If overseas buyers don't continue purchasing U.S. debt, some economists worry that would mean falling demand at Treasury debt auctions and rising interest rates.

China, the largest foreign holder of U.S. Treasury securities, trimmed its holdings, to $776.4 billion in June from $801.5 billion in May. Russia also reduced its holdings 3.7 percent to $119.9 billion in June.

China's holdings are a direct result of the huge trade deficits the U.S. runs with the emerging Asian power. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities.

American manufacturers argue that gives China unfair trade advantages by keeping the dollar overvalued against the Chinese currency, which makes U.S. goods more expensive for Chinese consumers and Chinese products cheaper here.

Both the Bush and Obama administrations have argued that China should allow its currency to rise faster in value against the dollar, but the yuan has stopped appreciating against the dollar in recent months.

Japan, the second largest holder of U.S. Treasury securities, increased its holdings 5.1 percent to $711.8 billion in June. And the United Kingdom, the third largest holder of Treasurys, increased its holdings nearly 31 percent to $214 billion.

Foreign governments purchased $22.5 billion of Treasury bonds and notes, the department said, after selling $21.8 billion in May. Overseas governments sold $5.9 billion in bonds issued by mortgage giants Fannie Mae, Freddie Mac and other government agencies.

Private foreign investors purchased $78 billion in Treasury bonds and notes in June, the department said, up from sales of $800 million in May.