WASHINGTON: Foreign demand for US Treasury securities rose to a record level in July and China increased its holdings after two months of declines.
The Treasury Department says total foreign holdings rose 0.7 percent in July to a record $ 5.35 trillion.
China, the largest foreign holder of Treasury debt, boosted its holdings to $ 1.15 trillion, up 0.2 percent from June. Japan, the second-largest buyer of Treasury debt, increased its holdings 0.6 percent to $ 1.12 trillion.
Demand for US debt is rising in part because investors are worried about Europe's debt crisis and its impact on the global economy. "With choppy financial markets and volatility in Europe, which were both widespread in July, private investors abroad purchased more Treasuries than any other asset class in July," said Jay Bryson, global economist at Wells Fargo.
US government debt is considered one of the world's safest investments. Moody's, however, has warned it could lower America's top credit rating if Congress fails to reach a budget deal later this year.
Gregory Daco, senior US economist at IHS Global Insight, predicted that foreign demand for Treasury debt would remain strong in coming months, in part because the US economy will be doing better than Europe.
The report showed that holdings of Treasury debt by foreign governments increased 0.6 percent in July to $ 3.86 trillion. Foreign governments, including foreign central banks, account for 72 percent of the foreign ownership of US Treasury securities.
Meanwhile, the US current account trade deficit narrowed in the April-June period, pushed lower by an increase in American exports and cheaper oil imports.
The Commerce Department said Tuesday that the deficit in the current account decreased 12.1 percent to $ 117.4 billion in the second quarter. That's down from a deficit of $ 133.6 billion in the January-March quarter, which had been the largest in three years.
The current account is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from foreigners.
Many economists predict it will widen again in coming quarters. A global slowdown has dampened demand of for US exports. And oil prices are rising again, in part because of increased Middle East tensions.
Europe's debt crisis has pushed much of the region into recession. The region accounts for about one-fifth of US export sales. And other major export markets, including China, India and Brazil, have experienced slower growth.
The current account deficit hit an all-time high of $800.6 billion in 2006. It then shrank after a deep recession reduced US demand for foreign goods by a greater amount than US export sales were dampened. The trade gap began widening again after the recession ended in June 2009.
The economy grew at an anemic annual rate of 1.7 percent in the April-June quarter and job growth has been disappointing.
That prompted the Federal Reserve last week to announce new efforts aimed at boosting the economy and combatting high unemployment. The Fed on Thursday said it buy an average of $ 40 billion a month in mortgage bonds to try to lower long-term interest rates lower and stimulate the economy. The Fed said it will keep buying bonds until the economy and job market show significant improvement.
In the April-June quarter, deficit in goods sold shrank to $ 185.8 billion, down from a deficit of $ 194.3 billion in the first quarter. US exports rose 1.4 percent to $ 394.1 billion. Sales of farm products, led by a sharp rise in exports of soybeans, drove exports higher. Imports fell 0.5 percent to $ 579.9 billion, reflecting a drop in petroleum imports.
The US surplus in services increased 1.3 percent to $ 46.5 billion. The gain was due to stronger US overseas sales of financial services, business and professional services and higher royalties to US companies.
The surplus in investment income increased 0.8 percent to $ 184.6 billion in the second quarter, reflecting higher interest and dividend payments earned by US investors on their overseas holdings.
Net unilateral transfers, a category, which includes foreign aid payments, rose 2.7 percent to $ 33.6 billion in the second quarter.
The various changes left the current account deficit at 3 percent of the total economy, down from 3.5 percent in the January-March quarter.
FROM: THE ASSOCIATED PRESS
Foreign holdings of US debt rise to record $ 5.35 trillion
