Foreign purchases of US assets rise

The foreign appetite for US assets rose in June, ending four months of consecutive declines and allaying fears about the potential impact of the widening US trade deficit reported last week.

The US Treasury yesterday reported that net foreign purchases of US securities rose 37 per cent from May to $85.5 billion (€69.2 billion, £46.5 billion) in June, with strong interest in both government bonds and equities.

The renewed interest in US assets has eased fears that the US dollar's weakness against the euro earlier this year had destroyed foreign interest in US stocks and bonds.

"It's evidence that foreign buying remains steady," said Mr Mark Mahoney, head of interest rate strategy at UBS, adding that the debt markets had also seen strong foreign demand at auctions of US Treasury bonds this year.

Economists study foreign purchases of US assets amid concerns that the US could struggle to fund its record current account deficit.

Last week, data showing an unexpectedly sharp widening of the US trade deficit sparked a slide in the dollar, as investors worried that a fall-off in portfolio inflows would dramatically weaken the currency.

To balance its payments, the US needs inflows of more than $1 billion each day to match trade outflows.

Some estimates suggest that the US already attracts about 10 per cent of the world's savings. Currency analysts warn this inflow cannot be sustained.

"This is an ongoing concern to those who are looking for the US economy to continue to grow and attract investment," said Mr Michael Woolfolk, senior currencies strategist at Bank of New York.

Foreigners were net buyers of all kinds of bonds in June, and were also net buyers of some $1.9 billion in equities, erasing a three-month pattern of net stock sales. The biggest surge in interest was seen in Treasuries, where net inflows jumped 28 per cent to $40.6 billion.