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Foreign investors buy $16.7 billion worth of U.S. securities in June

August 15, 2012: 11:34 AM ET


Investors in the rest of the world continued to buy U.S. investments in June, the Treasury Department said Wednesday.

Foreign investors purchased a total of $16.7 billion worth of U.S. securities, according to the latest Treasury International Capital (TIC) report. That's down sharply from May, when the same class of investors bought a total of $121.3 billion worth of U.S. securities.

TIC data measure the flow of funds into and out of assets priced in U.S. dollars, including Treasuries, debt issued by federal agencies, corporate bonds and stocks, among other things.

Broad swings from month to month are not unusual, said Tim Quinlan, an economist at Wells Fargo Securities. "This report tends to be choppy," he said. "I wouldn't rush to judgment on just one month."

However, he said the report is a useful gauge of market sentiment because it measures foreign demand for the most popular safe-haven asset in the world, U.S. Treasury bonds.

By that measure, demand for U.S. debt was still relatively strong in the month. Overall, private and public investors based overseas bought a net $32.5 billion worth of U.S. Treasury bonds and notes in June. In May, the figure was $45.9 billion.

Switzerland was the biggest buyer of U.S. Treasury securities in June, adding $10.8 billion to its $165.7 billion position. Japan was a close second, buying a total of $10.4 billion worth of U.S. Treasuries, for a total investment of $1.11 trillion.

China remains the single largest holder of U.S. Treasuries, with a total of $1.16 trillion. But investors in Mainland China bought only $300 million worth of Treasuries in June.

Overall, private and public investors based overseas bought a net $32.5 billion worth of U.S. Treasury bonds and notes in June.

Related: Investors say U.S. is still AAA

Since the financial crisis struck in 2008, investors around the world have flocked to the safety of U.S. Treasury bonds. Despite the downgrade of America's AAA credit rating last year, Treasuries are considered one of the best assets to preserve capital in times of economic uncertainty.

"U.S. debt securities have been the preferred safe-haven dollar-denominated assets for global investors over the past year," Paul Edelstein, an economist at IHS Global Insight, wrote in a note to clients. "But their attractiveness waxes and wanes from month to month depending on developments in the eurozone."

Meanwhile, the Federal Reserve has also bought billions of dollars worth of Treasuries over the past few years as part of a strategy to stimulate economic growth by driving down long-term interest rates.

The yield, or interest rate, on the 10-year Treasury bond fell to a record low of 1.44% in July. But yields have since rebounded to about 1.77% as of Wednesday. Investors have been increasingly gravitating towards higher yielding assets, such as corporate bonds and dividend stocks.

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