Global demand for U.S. stocks, bonds and other financial assets weakened in June from a month earlier as the White House and Congress wrangled over raising the debt limit, government figures show.
Net buying of long-term equities, notes and bonds totaled $3.7 billion during the month compared with net buying of $24.2 billion in May, according to statistics issued by the U.S. Treasury Department today in Washington. Including short-term securities such as stock swaps, foreigners sold a net $29.5 billion compared with net selling of $48.8 billion the previous month.
The Treasury’s reporting on long-term securities is a gauge of confidence in U.S. economic policy, and today’s report may reflect concern about the government’s ballooning debt. Earlier this month, the Standard & Poor’s rating company downgraded the Treasury’s debt rating after the budget stalemate between Congress and the White House.
“Looks like foreigners were clearing the decks,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “This is likely to continue in the next couple of months after the extreme volatility seen in recent weeks.”
Prior to the report, economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $35 billion in June. Seven economists participated in the survey and their estimates ranged from $18 billion to $50 billion.
China Top Holder
The data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.
Private transactions, which exclude foreign central banks, showed net selling of $23 billion, according to the data.
China remained the biggest foreign holder of U.S. Treasuries in June after its holdings rose by $5.7 billion to $1.166 trillion, according to the Treasury’s statistics. Japan, the second-largest holder, reduced its holdings in June by $1.4 billion to $911 billion. Hong Kong, counted separately from China, reduced its holdings by $3.5 billion to $118.4 billion in June.
“Many official institutions have little choice but to make their investments into the U.S. reserve currency,” Rupkey said. “China is still buying in June, but the jury is out whether they will add as aggressively to their holdings after being displeased with the U.S. downgrade in August.”
To contact the reporters on this story: Vincent Del Giudice in Washington at Or vdelgiudice@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
