Colin Barr

Following the money in banking, economics, and Washington

Foreigners still buying U.S. bonds

July 18, 2011: 9:36 AM ET

Foreigners continued to buy American in May.

Overseas investors bought $45 billion worth of U.S. stocks and bonds, the government said Monday in its monthly Treasury International Capital report. That's up from $31 billion in April and above the $40 billion net purchase forecast by economists.

Among the big purchasers, as usual, were China, whose official stock of U.S. Treasury holdings rose by $7 billion to a globe-topping $1.16 trillion, and Japan, whose holdings rose $6 billion to $912 billion.

Despite the time lag, the numbers get eyeballed in the market because profligate U.S. spending and rampant overseas borrowing play on fears that our creditors will provoke a financial crisis by deserting us.

The dump-the-debt scenario is somewhat far fetched, of course. Foreign purchases of U.S. assets are probably more appropriately seen as an artifact of the yawning U.S. trade deficit. Those selling us stuff end up with dollars and buy bonds (and some stocks) with the proceeds. There is no great reason to expect funds to stop flooding into the United States as long as others continue to base their economies on selling stuff to us.

Nonetheless, the dollar-collapse fears are even more prominent lately as lawmakers toy with allowing the United States to default on its debt by failing to raise the debt ceiling before the government runs out of money next month.

But with Europe on the brink of a meltdown, it is not quite clear where all the money rushing out of dollars might go – which keeps the funds flooding into Treasury, at least for the moment.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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