Bloomberg News

Global Demand for U.S. Assets Rises as Investors Seek Safety

November 29, 2011

(Updates with economist quote in fourth paragraph.)

Nov. 16 (Bloomberg) -- Global demand for U.S. stocks, bonds and other financial assets rose the most in 10 months in September as investors sought the safety of Treasury securities amid Europe’s sovereign-debt crisis.

Net buying of long-term equities, notes and bonds totaled $68.6 billion, the highest since November 2010, compared with net buying of $58 billion in August, the Treasury Department said in Washington today. Including short-term securities such as stock swaps, foreigners purchased a net $57.4 billion in September, compared with net buying of $89.3 billion the previous month.

Treasuries rose in September, extending their biggest quarterly advance since the depths of the financial crisis in 2008, on concern Europe’s sovereign-debt turmoil and a sluggish U.S. economy would undermine the global recovery. The rally repudiated Standard & Poor’s Aug. 5 downgrade of the U.S. AAA credit rating and drove yields to record lows.

“Despite problems we have here, problems elsewhere are worse,” Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said after the report. “People seem willing to take on American risk.”

Bloomberg Survey

Economists in a Bloomberg News survey projected long-term financial assets would show net buying of $55 billion in September. Eight economists participated, and their estimates ranged from net buying of $75 billion to net sales of $10 billion.

China remained the biggest foreign holder of U.S. Treasuries in September after its holdings rose by $11.3 billion to $1.15 trillion. Hong Kong, counted separately from China, increased its holdings by $1.1 billion to $109 billion. Japan, the second-largest holder, increased its holdings in September by $20.2 billion to $956.8 billion.

“The U.S. is and will continue to be a safe haven since the sovereign debt situation is not going away just because there have been some changes in government” in Italy and Greece, said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania, before today’s report.

Treasuries returned 6.36 percent in the period from July to September, the biggest quarterly gain including reinvested interest since the last three months of 2008, Bank of America Merrill Lynch indexes show. Company bonds returned 2.26 percent and mortgage securities gained 2.32 percent, the indexes showed. The Barclays U.S. Aggregrate bond index gained 3.8 percent for the quarter through Sept. 29.

Bernanke, Investors

Federal Reserve Chairman Ben S. Bernanke said Treasury securities remain a core holding for investors. “The downgrade didn’t scare off any investors,” and the action, along with the prospect of other downgrades, hasn’t done “significant damage” to the economy, Bernanke said Nov. 10 at a town-hall-style event in El Paso, Texas.

Moody’s Investors Service and Fitch Ratings affirmed their top rankings on Aug. 2, after President Barack Obama and Congress avoided default by agreeing to lift a limit on borrowing.

The U.S. budget deficit registered $1.3 trillion in the fiscal year ended Sept. 30, up from $1.29 trillion in 2010 and the second-highest on record, according to separate Treasury Department data. It reached $1.42 trillion in 2009, the highest ever. The September gap widened to $64.6 billion from $34.6 billion in the same month last year.

Budget Deficit

The budget deficit was 8.7 percent of gross domestic product in fiscal 2011, the third-highest since 1945.

The deficit narrowed in October, the first month of the new fiscal year, reflecting a calendar-related reduction in spending and an increase in tax receipts. The $98.5 billion shortfall is smaller than the $140.4 billion posted in the same month last fiscal year.

A congressional supercommittee faces a Nov. 23 deadline to propose a debt-cutting plan. Lawmakers are trying to break a partisan impasse over tax increases in exchange for spending cuts as the supercommittee seeks to cut $1.5 trillion from the budget deficit. The panel’s six Democrats and six Republicans remain hundreds of billions of dollars apart on the tax revenue issue.

The U.S. trade deficit unexpectedly narrowed in September to the lowest level this year as exports surged to a record high. The shortfall shrank 4 percent to $43.1 billion from a revised $44.9 billion in August that was smaller than initially reported, the Commerce Department said Nov. 10 in Washington.

--Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporters on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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