Foreign Demand for U.S. Assets Rises on Global Slowdown

International purchases of U.S. stocks, bonds and other financial assets rose more than forecast in December as investors sought shelter from slowing global growth.

Net buying of long-term financial assets totaled $64.2 billion during the month, up from net purchases of $52.4 billion in November, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $35 billion of long-term assets, according to the median estimate.

“The significant increase in December is a reflection of the heightened concern among global investors about the U.S. economy being pushed into a recession by the fiscal cliff,” Millan Mulraine, senior U.S. strategist for TD Securities Inc. in New York, said after the report was released. “Investors who feared the adverse impact of a U.S. economic slowdown on global activity fled to the safe haven of Treasuries.”

In December, President Barack Obama and Republicans in Congress were at a standoff over tax increases and spending cuts that threatened growth in the world’s biggest economy. The U.S. House of Representatives on Jan. 1 passed legislation that avoided what had been called the “fiscal cliff.”

IMF Forecasts

The International Monetary Fund in January cut its global growth forecasts and now projects a second year of contraction in the euro region as progress in battling Europe’s debt crisis fails to produce an economic recovery.

The world economy will expand 3.5 percent this year, less than the 3.6 percent forecast in October, the Washington-based IMF said in an update of its World Economic Outlook report. While the fund projects growth this year increasing from last year’s 3.2 percent pace, it expects the 17-country euro area to shrink 0.2 percent in 2013, instead of growing 0.2 percent as forecast in October.

President Obama and Republicans are locked in a standoff over how to avert $1.2 trillion in automatic spending cuts set to take effect on March 1 unless Congress acts to stop or replace them. In addition, a temporary suspension of the nation’s $16.4 trillion debt ceiling only runs through May 18.

Including short-term securities such as stock swaps, foreigners bought a net $25.2 billion in December, down from net purchases of $29.7 billion the previous month.

China remained the biggest foreign owner of U.S. Treasuries in December after its holdings rose $19.7 billion to $1.2 trillion, according to the Treasury. Japan, the second-largest holder rose $2.5 billion to $1.12 trillion in holdings.

Foreigners bought a net $29.9 billion of Treasuries in December, according to today’s report, up from $26.4 billion the month before.

Estimates of foreign transactions in long-term U.S. assets in December ranged from net buying of $28.5 billion to $60 billion, according to five economists surveyed by Bloomberg before the report.

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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