(ShanghaiDaily, Sept 19, 2006)INTERNATIONAL investors slowed purchases of US securities in July as demand for Treasury notes tumbled, Bloomberg News reported.

Net holdings of Treasury notes, corporate bonds, stocks and other financial assets increased US$32.9 billion, down from June's revised US$75.1 billion and smallest gain since May last year, the Treasury Department said yesterday in Washington.

Emerging markets ended a two-month slide in July, encouraging some investors to venture beyond the relative security of American markets.

The decline in demand for US assets may be short-lived, given a 10-week rally in Treasury notes that's gathered pace since the Fed ended a two-year run of interest-rate increases in August.

Scary number

"It's quite a scary looking number on the surface," said Neil Jones, head of European hedge fund sales at Mizuho Financial Group Inc in London. "However, the dollar hasn't reacted that way because investors and speculators are looking for Japanese investors to move back into dollar assets."

The dollar fell against the euro in the minutes after the report before recovering. Treasury notes extended a drop that began earlier yesterday after Treasury Secretary Henry Paulson downplayed a slump in the housing market.

Analysts estimated inflows of US$70 billion, the median of 14 forecasts in a Bloomberg News survey. International purchases of US securities peaked at US$102.6 billion in October and averaged US$74.7 billion in the 12 months through June.

Purchases of Treasury securities rose a net US$6.6 billion, the least since April, down from US$27 billion in July. Demand for agency debt rose US$18.5 billion, compared with US$22.9 billion a month earlier.The investments were insufficient to cover July's US$68 billion trade deficit, which some analysts say is an indicator of how easily the US can pay for its record current account and trade shortfalls. The current account gap widened to US$218.4 billion in the second quarter.

The Institute for International Finance last week raised its forecast of private capital flows into emerging markets to US$418 billion this year from its earlier prediction of US$357 billion.
Source:ShanghaiDaily
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