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Foreigners snap up Treasuries despite concern

November 18, 2009|Tom Petruno

There may come a day when fears about foreigners wanting to dump their U.S. Treasury securities will amount to something. But we clearly aren't there yet, even as the dollar keeps sinking in value.

Net foreign purchases of Treasury bonds and notes in September totaled $44.7 billion, up from $28 billion in August, according to the government's latest report on cross-border investment flows.

Total net foreign purchases of U.S. long-term financial assets -- stocks, corporate bonds and government bonds -- in September came to $55.7 billion, up from $37.5 billion in August.

In the 12 months through September, foreigners bought a net $333 billion of Treasury notes and bonds. That was down 9.5% from the amount of net purchases in the 12 months ended September 2008 but still shows a robust appetite for U.S. debt -- a big help to the Treasury amid record borrowing to fund the mammoth federal budget deficit.

The falling dollar has made U.S. securities cheaper for foreigners whose currencies are strong. Although that may be attracting overseas buyers, the buck's slide also devalues their existing holdings.

Despite their rumblings of concern this year about the pace of U.S. borrowing and about the dollar, the Chinese remain the biggest single foreign owner of Treasury securities -- bonds, notes and bills -- at $798.9 billion in September, Treasury data show. That total was up from $727 billion at the start of the year.

Japan is the second-largest holder of Treasuries, at $751.5 billion, up from $626 billion at the start of the year.

Britain is the third-largest, at $249 billion, nearly double what it held at the start of January.

"The big three of China, Japan and the U.K. are providing the requisite foreign demand for U.S. Treasuries since the onset of the credit crisis over a year ago," said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

"This has kept U.S. [interest] rates low and the U.S. dollar's decline manageable," he said.


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