Demand for long-term U.S. assets weaken

Net buying of long-term equities, notes and bonds totaled US$15.3 billion for the month, compared with purchases of US$90.2 billion in June, the Treasury Department said Wednesday in Washington. Including short-term securities such as stock swaps, foreigners sold a net US$97.5 billion in July, compared with net selling of US$56.8 billion the previous month.

Emerging economies such as China and Russia have questioned the dollar's dominance in the global economy because of a federal budget deficit projected to exceed US$1.5 trillion in the fiscal year that ends Sept. 30. Investors abroad were also net sellers of U.S. corporate and agency debt in July.

“Foreigners have found more rewarding harbors,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. Economists predicted investors would purchase a net US$60 billion of long-term securities in July, according to the median of seven estimates in a Bloomberg News survey. In its initial report for June, the Treasury said total purchases of long-term equities, notes and bonds were a net US$90.7 billion.

The Treasury's reporting on long-term securities captures 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.

U.S. government securities of all maturities handed investors a 0.03-percent gain through July 30, according to Merrill Lynch & Co.'s U.S. Treasury Master index. For the month of July, the debt lost 0.3 percent, the fourth straight drop and longest losing streak since 1996.

The dollar declined in July for a fourth consecutive month against a trade-weighted basket of currencies. The Standard & Poor's 500 Index rose 7.4 percent in July from a month earlier.

During the financial market turbulence of the past two years, Treasuries have been a safe haven for investors worldwide.

“The attractiveness of U.S. assets is not, and has not been, in question,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York in a market commentary.

According to the statistics, foreign purchases of Treasury notes and bonds were US$31.1 billion in July compared with purchases of US$100.5 billion a month earlier.

China remained the biggest foreign holder of U.S. Treasuries, adding US$24.1 billion in July after net sales in the prior month. Japan, the second-largest holder, increased its holdings by US$12.7 billion.

Brazil, Russia, Ireland, Switzerland and oil-exporting nations were among the countries that were net sellers of U.S. Treasuries in July.

President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of debt sales to fund a US$787 billion stimulus spending package. Chinese Premier Wen Jiabao said in March that the Asian nation was “worried” about the safety of its investment in U.S. debt, as a weakening dollar erodes the value of its record US$2.1 trillion of foreign-exchange reserves.

Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac weakened, with net sales of US$4.6 billion in July after buying of US$5.1 billion in June, according to the Treasury.

Net foreign purchases of U.S. equities were US$28.6 billion in July after net purchases of US$19.1 billion the previous month. Investors sold a net US$11.1 billion in U.S. corporate debt in July after US$1 billion selling a month earlier.

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