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
Foreign holdings of US debt rise to record $ 5.35 trillion
G7 countries to release oil reserves as IEA agrees to largest ever market intervention
- IEA recommends release of 400 million barrels
RIYADH: Germany, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
In a statement, IEA Executive Director Fatih Birol said the flow of oil, gas and other commodities through the Strait of Hormuz have all but stopped, leading global energy supply to fall by around 20 percent.
Ahead of the confirmation of the move — a larger intervention than the 182.7 million barrels that were released in 2022 by in response to Russia’s invasion of Ukraine — several countries began setting out plans to bring their reserves into play as countries grapple with soaring crude prices amid the US-Israeli war with Iran.
Birol said: “I can now announce that IEA countries have decided to launch the largest ever release of emergency oil stocks in our agency's history.
“IEA countries will be making 400 million barrels of oil available to the market to offset the supply lost through the effective closure of the strait.
“This is a major action aiming to alleviate the immediate impacts of the disruption in markets.”
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday her government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The US has not confirmed it would do so, but its Interior Secretary Doug Burgum told Fox News on Wednesday that “these are the kinds of moments that these reserves are used for.”
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Germany’s Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
South Korea will release 22.46 million barrels of oil, which represents 5.6 percent of the total IEA ask, the country's industry ministry said.
“The government will consult with the IEA secretariat on details, such as the timing and amount, from the perspective of national interests in accordance with domestic conditions,” the ministry said in a statement.
The ministry said it would continue to coordinate closely with major countries in responding to high oil prices to minimise any domestic impact.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
Following a meeting with the IEA on Wednesday, G7 energy ministers said: “In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves.”
All IEA member countries are required to keep 90 days’ worth of their nation’s oil use in reserve in case of global disruption.
