Bloomberg News

Foreign Buying of U.S. Assets Was Below Estimate in October

December 17, 2012

President Barack Obama and House Speaker John Boehner

Investors are now awaiting the outcome of talks between President Barack Obama and House Speaker John Boehner to reach a compromise on averting spending cuts and tax increases set to take effect next year. Photographer: Olivier Douliery/Pool via Bloomberg

International purchases of U.S. financial assets rose less than forecast in October as confidence grew that European leaders were moving toward resolving their debt crisis.

Net buying of long-term equities, notes and bonds totaled $1.3 billion during the month, down from net purchases of $3.2 billion in September, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $25 billion of long-term assets, according to the median estimate.

“It seems foreigners reduced their U.S. stock position as the market corrected,” Sebastien Galy, a senior foreign- exchange strategist at Societe Generale SA in New York, said in an e-mail after the report. “It feels like we are getting some very sizable moves in banks’ foreign-exchange asset-liability management.”

Net foreign purchases of U.S. equities plunged to $598 million in October from $23.8 billion the month before.

European Union leaders capped a third year of debt-crisis management with Greece ready to obtain fresh financial aid and a euro bank regulator taking shape. Financial-market tensions have abated, thanks mainly to a pledge by the European Central Bank, first made in late July and yet to be acted on, to put a floor under the bond markets of vulnerable countries such as Spain or Italy.

Obama, Boehner

In the U.S., investors are now awaiting the outcome of talks between President Barack Obama and House Speaker John Boehner to reach a compromise on averting spending cuts and tax increases set to take effect next year.

Obama rejected a Dec. 14 offer by Boehner to raise rates on household income above $1 million a year and lift the federal debt ceiling in exchange for containing entitlement program costs. While Obama wants higher rates for income above $250,000, Boehner’s offer marked movement because he has opposed increased rates for any income level.

Including short-term securities such as stock swaps, foreigners sold a net $56.7 billion in October, as opposed to net purchases of $4.3 billion the previous month.

Assets Rebound

“Flows into U.S. assets are likely to rebound in the last two months of the year as heightened anxiety about the impending U.S. fiscal austerity pushes foreign investors back into Treasuries,” Millan Mulraine, senior U.S. strategist for TD Securities Inc. in New York, said before the report was released.

China remained the biggest foreign owner of U.S. Treasuries in October after its holdings rose $7.9 billion to $1.16 trillion, according to the Treasury.

Japan, the second-largest holder, saw its Treasury holdings rise $5.2 billion to $1.13 trillion.

Foreigners bought a net $15.8 billion of Treasuries in October, according to today’s report, as opposed to sales of $17.3 billion the month before.

Net foreign purchases of U.S. corporate bonds totaled $3.64 billion in October, up from sales of $6.42 billion a month earlier.

Estimates of foreign purchases of long-term U.S. assets in October ranged from net selling of $35 billion to net buying of $65 billion, according to five economists surveyed by Bloomberg before the report.

To contact the reporters on this story: Meera Louis in Washington at mlouis1@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net

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


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