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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (354994)	10/16/2007 2:14:46 PM
From: tejek	Read Replies (1) \| Respond to of 1577147

US Treasuries In a figure that is likely to be oft-cited and to impact markets until it reverses, net foreign purchases of U.S. securities were a record -$69.3 billion in August, meaning that foreign investors were net sellers of $69.3 billion of U.S. securities during the month. The outflow exceeded the previous record, set in March 1990, by $48.1 billion. The consensus forecast was for an inflow of $60 billion, a level roughly equal to the monthly average for the past five years. The decline fits with the performance of the U.S. stocks, credit securities and the dollar in August, a harrowing month that would not have turned out as it did if foreigner investment had continued at its normal pace. This is what makes the estimates for $60 billion in inflow difficult to understand; the performance of the markets tipped it off. Looking forward, in light of the strong performance of the U.S. securities markets in September, inflows of foreign capital probably resumed during the month. Nevertheless, that is a story for another day, and the markets must today contend with news of a large-scale pullout of money from U.S. markets. Japan's $24.8 billion sale of U.S. Treasuries stands out. Japan has been a net seller of Treasuries for three years, shaving its holdings to $585.6 billion from a peak of $699.4 billion in August 2004. Japan has been a big seller on a monthly basis before, selling $22.1 billion last June, for example, so the latest figure is not extraordinary in that sense. It is intriguing amid these figures to note that despite Japan's pullback from the U.S. Treasury market, Treasury yields have stayed relatively low. This shows the depth of the Treasury market and illustrates that many other influences are considerably more important in the determination of interest rate levels. In particular, the fed funds rate and the inflation rate are far bigger influences. Still, these latest figures are likely to weigh on the side of keeping interest rates higher than they would otherwise be. By the way, China, which has been a net buyer all the while Japan has been a net seller, sold $8.8 billion of Treasuries, its fourth sale in five months, bringing its holdings to $400.2 billion, down from the peak of $421 billion in March. China is continuing an effort to diversify its vast holdings of international reserves, which now total more than $1.4 trillion. The net sales, occurring while China's reserve holdings have increased, means that its diversification out of dollar assets has gained speed. Interestingly, two countries sold all of their Treasury holdings in August. Norway sold all of its $7.4 billion in holdings, and Ireland sold its $11.4 billion in holdings. The U.S. equity market saw a very large outflow of $40.6 billion in August, by far the largest-ever decline, surpassing the old record of $11.5 billion set in September 2001. Predictably, other segments of the credit market saw reduced inflow, with the corporate bond market seeing a net outflow of $1.2 billion following a very modest net inflow of $4.5 billion in July. It was the first net sale since November 2002 and the largest ever net sale. The past two months are in sharp contrast to the three prior years when net inflows into U.S. corporate bonds averaged $37 billion per month. Foreign buying had been essential in helping to keep credit spreads tight in the U.S., underscoring the importance to U.S. companies of their continued involvement in the U.S. credit markets.