Foreigners Snap Up U.S. Corporate Bonds
Foreign investors loaded up on American corporate bonds in June, helping to lift the total net capital inflow to U.S. securities to $71.2 billion, the most in five months, the Treasury Department said Monday.
The monthly report on foreigners’ purchases and sales of U.S. bonds and stocks is closely watched because the nation is heavily dependent on foreign money to fund its huge trade and budget deficits.
The net inflow of $71.2 billion to U.S. securities was the most since the $79.6-billion total of February.
“Overall, foreigners have an appetite for our securities,” said Drew Matus, economist at Lehman Bros. in New York.
But that demand was concentrated in corporate bonds in June: Private foreign investors snapped up a net $49.9 billion of U.S. corporate issues, up from $18.6 billion in May.
By contrast, those investors shied away from Treasury issues in June: They were net sellers of $3.3 billion of the securities, after pumping a net $20.8 billion into the issues in May.
Matus said the pickup in demand for corporate bonds suggested “some attempt to add a little risk to portfolios.” Corporate bonds pay more than Treasuries but also carry the risk of default if the bond issuers were to encounter financial trouble.
Foreign central banks and other institutions lumped into the category of “official” investors increased their purchases of Treasury securities in June as private foreign investors stepped away.
Official net purchases of Treasuries totaled $11.2 billion, up from $6.8 billion in May.
Official net purchases of corporate bonds were $2.3 billion in June, up from $1.8 billion in May.
Although foreigners remained net buyers of U.S. bonds in June, they turned away from U.S. stocks. Private foreign investors sold a net $400 million of American shares in the month, compared with net purchases of $200 million in May.
The lack of foreign demand for U.S. stocks contrasted with American investors’ still-ravenous appetite for foreign stocks.
Americans were net buyers of $9.6 billion of foreign shares in June, more than double what they bought in May. In the first half of the year Americans bought a net $50 billion of foreign shares, continuing a trend that accelerated in the second half of 2004.
The dollar’s steep slide against major foreign currencies in 2004 automatically boosted the value of foreign assets owned by U.S. investors.
This year, however, the dollar has strengthened against many currencies. But American investors have continued to be heavy buyers of foreign shares.
The Treasury’s monthly securities inflow total measures what foreigners invest in U.S. stocks and bonds after adjusting for what Americans send abroad. The data don’t include direct foreign investment in U.S. assets or direct U.S. investment abroad.
