MIKE

By Vincent Del Giudice
May 16, 2011 8:21 AM PT
Bloomberg

Global demand for U.S. long-term financial assets such as government bonds slowed in March as investors shifted into shorter-term securities and China trimmed its portfolio of Treasuries.

Net buying of long-term equities, notes and bonds totaled $24 billion during the month, compared with net buying of $27.2 billion in February, according to statistics issued today in Washington. Including short-term securities such as stock swaps, foreigners purchased a net $116 billion, compared with net buying of $95.6 billion the previous month.

The Treasury’s reporting on long-term securities helps gauge confidence in the U.S. economy as well as fiscal and monetary policy. The data capture international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.

“Foreigners had a little more confidence in the recovery in March,” and they shifted into swaps, equities and riskier assets from Treasury securities, said Kevin Chau, a foreign exchange strategist at IDEAglobal in New York.

China remained the biggest foreign holder of U.S. Treasuries, after its holdings fell by $9.2 billion to $1.145 trillion in March from $1.154 trillion in February, according to the Treasury’s statistics.

Japan, Hong Kong

Japan, the second-largest holder, increased its holdings by $17.6 billion to $907.9 billion in March from $890.3 billion in February. Hong Kong, counted separately from China, reduced its holdings by $2.5 billion to $122.1 billion in March from $124.6 billion in February.

Before today’s report was issued by the Treasury, economists in a Bloomberg News survey projected long-term U.S. financial assets would show net buying of $33 billion in March. Seven economists participated in the survey, and their estimates ranged from $10 billion to $45 billion.

Total foreign purchases of Treasury notes and bonds were $26.8 billion in March compared with purchases of $30.6 billion in February. Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac registered net buying of $9.49 billion in March after selling of $1.49 billion in February.

Net foreign purchases of equities were $14.7 billion in March after net purchases of $6.1 billion in February. Investors purchased a net $3.77 billion in U.S. corporate debt in March after selling $2.54 billion in February.
Slower Than Forecast

In the first quarter, the U.S. economy grew at a slower- than-forecast annual rate of 1.8 percent as government spending declined by the most since 1983, according to Commerce Department statistics released April 28. In the fourth quarter of last year, gross domestic product grew at a 3.1 percent annual rate.

In emerging European economies, public finances have “sharply deteriorated” and banks are burdened by “large numbers” of nonperforming loans, the International Monetary Fund said in a report May 12. The European Union and the IMF were forced to organize bailouts for Greece and Ireland last year and are preparing a rescue plan for Portugal.

China and the U.S. remain at odds over foreign exchange policy. After meetings last week in Washington, Chinese Deputy Finance Minister Zhu Guangyao said the U.S. and China agree that the yuan should be allowed to strengthen. However, “the view from the U.S. side is that the yuan should rise continuously at a faster appreciation pace,” Zhu said. “We have differences on the degree of appreciation.”

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