Foreigners’ Net Purchases of U.S. Securities Fall

Foreign investors’ net purchases of U.S. bonds and stocks fell in August from July, but demand remained robust enough to more than offset the huge U.S. trade deficit, new data show.

Foreigners bought a net $87.9 billion in U.S. securities in August, down from $101.3 billion in July, the Treasury said Tuesday.

That money inflow from overseas was well above the nation’s $59-billion trade deficit for the month.

Economists watch inflow data for signs of global investors’ attitude toward U.S. assets. If foreigners became unwilling to buy U.S. securities, the cost of raising capital could rise: To attract investors, bond issuers might have to pay higher interest and stock issuers might have to sell shares at lower prices.

The August data show that “foreign investors are still upbeat about the U.S. market,” said Andrew Pyle, an economist at Scotia Capital Inc. in Toronto.

But he warned that, given the concerns about the U.S. economy since the Gulf Coast hurricanes hit, September capital inflows might not be as strong.

Net foreign purchases of U.S. corporate bonds surged to $40.2 billion in August from $24.9 billion in July. Foreigners’ net buying of U.S. Treasuries was steady, at $28.1 billion in August compared with $28.5 billion.

But net purchases of government-agency securities fell to $15.7 billion from $37.8 billion.

Overall, U.S. bond yields are higher than those of many other industrialized nations, offering foreigners the potential for a better return.

Overseas investors were less interested in U.S. stocks in August: They bought a net $3.8 billion of shares in the month, down from $10.1 billion in July.

The Treasury’s monthly report also shows U.S. investors’ purchases of foreign securities. Americans continued to be big buyers of foreign stocks in August, acquiring a net $13.5 billion worth of those shares, up from $8.7 billion in July.

But U.S. investors were net sellers of foreign bonds, shedding $17 billion worth, compared with net purchases of $5.1 billion the previous month.

The Treasury’s report covers only securities purchases and sales. Foreigners also invest in the U.S. directly (such as by buying businesses) and via bank accounts.