Foreign demand for long-term US securities falls

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September 16, 2009

Anonymous The Salem News Wed Sep 16, 2009, 10:51 AM EDT

WASHINGTON (AP) — Foreign demand for long-term U.S. financial assets fell in July, but China boosted its holdings, the Treasury Department said Wednesday.

Foreigners purchased $15.3 billion more assets than they sold in July. Still, that's a steep decline from June, when they purchased $90.7 billion more than they sold.

The Treasury is auctioning record amounts of debt to cover a budget deficit it estimates will hit $1.58 trillion this year. Some economists worry that if overseas buyers don't keep buying U.S. debt, interest rates could rise.

China, the largest foreign holder of U.S. Treasury securities, boosted its holdings to $800.5 billion, from $776.4 billion in June.

China's holdings are a direct result of the huge trade deficits the U.S. runs with the emerging Asian power. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities. American manufacturers argue that gives China unfair trade advantages by keeping the dollar overvalued against the Chinese currency, which makes U.S. goods more expensive for Chinese consumers and Chinese products cheaper here.

Both the Bush and Obama administrations have argued that China should allow its currency to rise faster in value against the dollar, but the yuan has stopped appreciating against the dollar in recent months.

Japan, the second-largest holder of the securities, increased its holdings to $724.5 billion in July from $711.8 billion in June. And the United Kingdom, the third-largest holder of Treasuries, increased its holdings to $220 billion from $214 billion in June.

Russian holdings fell 1.6 percent, to $118 billion from $119.9 billion in June.

Foreign governments purchased $15.8 billion of Treasury bonds and notes, the department said, after buying $22.5 billion in June. Overseas governments sold $7.2 billion in bonds issued by mortgage giants Fannie Mae, Freddie Mac and other government agencies. That's more than the $5.9 billion they sold in June.

Private foreign investors purchased $14.6 billion in Treasury bonds and notes in July, the department said — a sharp drop from the $77.6 billion they bought in June.

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