Wednesday, February 18, 2009

Foreign money continues to pour into US

By Alan Rappeport in New York Published: February 17 2009 23:18 Last updated: February 17 2009 23:18 Foreign investors continued pouring money into the US in December, as demand for its financial assets grew in spite of the deepening economic downturn. The latest monthly Treasury International Capital (Tic) data show that foreign purchases of US securities grew to $74bn in December, up from $61.3bn the month before. Inflows for purchases of long-term securities were $34.8bn, compared with outflows of $25.6bn in November. December marked a rebound for sales of long-term Treasury debt, which saw foreigners buy $15bn after selling off $25.8bn the month before. Corporate debt was also in greater demand, as purchases reached $41bn after months of selling. “Foreigners were bottom-fishing in the corporate bond sector,” said Alan Ruskin, strategist at RBS Greenwich Capital. Meanwhile, foreign investors spurned debt from companies backed by government agencies. Sales of debt issued by agency-backed companies such as Fannie Mae and Freddie Mac totalled $37.5bn in December. “A lot of things are being guaranteed by the government and the yield differential is considerable,” said Joshua Shapiro, chief US economist at MFR, referring to the flight from agency debt to corporate bonds. Demand for US securities continued to be dominated by China and Japan in December. China’s holdings of US Treasuries grew by $14.3bn to $696.2bn, while Japan purchased $800m in US Treasuries, bringing its holdings to $578.3bn. The continuation of this demand is important for the US as the government seeks to sell record amounts of US Treasury debt to finance its growing deficit and a nearly $800bn economic stimulus plan. Last week, Luo Ping, a director-general at the China Banking Regulatory Commission, said China would continue to buy Treasuries in spite of misgivings about US finances. The overall inflows beat economists’ expectations and gave some reassurance that the US has sufficient cash flows to continue financing its trade deficit.

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