International Demand for U.S. Assets Rises on Europe

International purchases of U.S. financial assets rose more than sevenfold in July as investors sought shelter from the debt crisis in Europe.

Net buying of long-term equities, notes and bonds totaled $67 billion during the month, up from net purchases of $9.3 billion in June, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $27.5 billion of long-term assets, according to the median estimate.

“The data suggest that European private investors used Treasuries and agencies to protect against deterioration in the euro financial markets in July,” said Guy LeBas, chief fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia. “That trend will likely continue into August’s data.”

U.S. assets have maintained their attraction as Spanish banks are hemorrhaging deposits and European leaders are still squabbling over the next steps needed to overcome the sovereign debt crisis. A Sept. 14 European Union finance ministers meeting in the Cypriot capital of Nicosia deadlocked over the timetable for a more unified EU banking sector.

Including short-term securities such as stock swaps, foreigners bought a net $73.7 billion in July, compared with net purchases of $15.1 billion the previous month.

Spain Backstop

Spain’s financial industry is already backstopped by Europe to the tune of 100 billion euros ($131 billion), and is reliant on 412 billion euros of gross borrowings from the ECB. Shrinking deposits are undermining the ability of banks to support economic growth even as the government debates whether to seek a bailout.

Estimates of foreign purchases of long-term U.S. assets in July ranged from net buying of $20 billion to $70 billion, according to four economists surveyed by Bloomberg before the report.

China remained the biggest foreign owner of U.S. Treasuries in July after its holdings rose $2.6 billion to $1.15 trillion, according to the Treasury. Hong Kong, counted separately from China, raised its holdings of Treasuries by $700 million to $136.7 billion.

France increased its holdings of Treasuries by 32 percent to $64.8 billion, and the U.K. raised its holdings to $140.9 billion from $137.8 billion. Switzerland’s holdings of Treasuries rose 10.7 percent to $190.1 billion.

U.S. Treasuries

International net purchases of U.S. Treasuries rose to $50 billion in July from $32.4 billion the month before.

The Treasury Department’s data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies.

Treasuries rose for a second day amid speculation economic growth will fail to fuel job growth, while European stocks and the euro fell on concern leaders will struggle to tame the debt crisis. U.S. equities fluctuated.

Ten-year U.S. Treasury yields declined five basis points to 1.79 percent as of 10:41 a.m. in New York. The Stoxx Europe 600 Index retreated 0.4 percent while the Standard & Poor’s 500 Index was little changed near 1,460. The euro slid 0.4 percent to $1.3059.

The Treasury said in February it was shifting from a transaction-based survey to a custodial survey to keep track of foreigners’ holdings. As a result, month-to-month comparisons are not comparable.

To contact the reporter on this story: Meera Louis in Washington at mlouis1@bloomberg.net

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

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