U.S. Assets Are a Safe Haven…Again

Investors spooked by the Greek debt crisis have been seeking shelter in the dollar. Global purchases of U.S. equities, notes, and bonds totaled $140.5 billion in March, more than double economists' projections, after net buying of $47.1 billion in February, the Treasury Dept. reported on May 17.

The figures mark a change from last year, when investors, concerned about the potential impact of U.S. budget deficits on the dollar, moved money to other countries. "Diversification was a major deadweight on the dollar last year," wrote Alan Ruskin, head of foreign-exchange strategy at Royal Bank of Scotland Group (RBS) in Stamford, Conn., in a note to clients. "Reverse diversification is now a major source of vulnerability for the euro."

Signs of an American economic recovery, including a rebound in earnings and stock prices, may increase demand for U.S. investments as concerns mount about the sustainability of government debt levels in Europe, economists say. The world's largest economy has expanded for three consecutive quarters and added 573,000 jobs in the first four months of the year.

Some of the buying came from China, where Treasury holdings rose 2 percent in March to $895.2 billion, the biggest increase since July. Japan, the second-largest holder, increased its holdings by $16.4 billion, to $784.9 billion, in March.

"Foreign institutions and individuals are still turning to the U.S. as a safe haven," says Paul Christopher, senior international investment strategist at Wells Fargo Advisors (WFC). "There was some concern foreigners were abandoning the U.S. currency. That fear was misplaced."

The bottom line: Despite record U.S. budget deficits, foreign investors continue to seek the relative safety of the dollar in times of crisis.

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