Foreign Demand for U.S. Assets Rises on Global Slowdown
International purchases of U.S. stocks, bonds and other financial assets were more than twice as much as forecast in November as investors sought shelter from a global economic slowdown.
Net buying of long-term financial assets totaled $52.3 billion during the month, swinging from net sales of $1 billion in October, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $25 billion of long-term assets, according to the median estimate.
“The global economic slowdown and renewed uncertainty in the U.S. about the impact of the fiscal cliff following the general election motivated the flight to safety,” Millan Mulraine, senior U.S. strategist for TD Securities Inc. in New York, said after the report was released. “With intensification of these concerns in December we are likely to see further increase in flows.”
President Barack Obama vowed he won’t negotiate over raising the government’s debt ceiling even as he offered to deal on a separate track with the deficit reduction demanded by Republicans. Senate Republican leader Mitch McConnell of Kentucky said the debt-ceiling debate is the “perfect time” to address spending, while House Speaker John Boehner, an Ohio Republican, brushed off Obama’s insistence on keeping the two separate.
The Fed said last month it will buy $45 billion a month of Treasury securities starting in January, expanding its asset- purchase program to $85 billion monthly. The central bank may end bond purchases sometime in 2013, some policy makers said, according to minutes of the Dec. 11- Dec. 12 meeting of the Federal Open Market Committee released Jan. 3.
The International Monetary Fund cut its global growth forecasts in October, saying the world economy would grow 3.3 percent last year, the slowest since the 2009 recession, and 3.6 percent in 2013. That compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013.
The World Bank yesterday cut its global growth forecast for this year. The Washington-based bank projects the world economy will expand 2.4 percent, down from a June forecast of 3 percent.
The U.K., France and Germany all increased their holdings of U.S. Treasuries in November.
Euro-area leaders have wrestled with a Cyprus rescue since it became the fifth euro state to seek aid last June. Aid for Cyprus will test policy makers’ commitments to hold the 17- nation currency bloc together and avoid more sovereign-debt writedowns after they said Greece’s restructuring wouldn’t be repeated.
Including short-term securities such as stock swaps, foreigners bought a net $27.8 billion in November, as opposed to net sales of $58.9 billion the previous month.
China remained the biggest foreign owner of U.S. Treasuries in November after its holdings rose $200 million to $1.17 trillion, according to the Treasury.
Japan, the second-largest holder, saw its Treasury holdings rise $900 million to $1.13 trillion.
Foreigners bought a net $26.4 billion of Treasuries in November, according to today’s report, up from $12 billion the month before.
Estimates of foreign transactions in long-term U.S. assets in November ranged from net selling of $10 billion to net buying of $35 billion, according to five economists surveyed by Bloomberg before the report.
The debt limit has been periodically raised since its creation in 1917, when Congress and President Woodrow Wilson authorized the Treasury to issue long-term securities to help finance entry into World War I. Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department, noting the U.S. never has defaulted on its obligations.
The last time Congress fought over raising the ceiling, Obama signed an increase on Aug. 2, 2011, the day that Treasury warned U.S. borrowing authority would expire. Standard & Poor’s cut the nation’s credit rating.
Still, U.S. Treasury bond investors -- who most directly bear the risk of any government default -- haven’t shown alarm over political fights ultimately resolved in Washington. Yields on 10-year U.S. Treasury notes declined to 2.56 percent on Aug. 5, 2011, the day of the S&P downgrade, and continued to fall.
Yields on 10-year Treasuries, a benchmark for everything from mortgages to corporate borrowing costs, are down from more than 5 percent in 2007, before the financial crisis of 2008.
Amid the debate over raising the debt limit again, the 10- year yield was down two basis points, or 0.02 percentage point, to 1.81 percent at 10:49 a.m. today in New York, according to Bloomberg Bond Trader prices.
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