By John Brinsley and Rebecca Christie
Nov. 18 (Bloomberg) — China surpassed Japan in September to become the biggest foreign holder of U.S. Treasuries, as foreign investors sought the relative safety of government debt as stocks plunged 9.1 percent that month.
Total net purchases of long-term equities, notes and bonds increased a net $66.2 billion in September from $21 billion the previous month, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $143.4 billion, compared with net buying of $21.4 billion the month before.
China led all foreign official investors in September by posting a net increase in U.S. Treasuries for the sixth month in the past seven, bringing its total ownership close to $600 billion. Japan was a net seller of Treasuries for the fourth month in the past six.
â€œThe details of the report paint a much more positive picture of cross-border investments than expected,â€ said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. â€œChina, along with others, is showing more demand than anticipated for U.S. assets.â€
Economists predicted international investors would buy a net $27.2 billion of long-term securities in September, based on the median of seven estimates in a Bloomberg News survey.
China leapfrogged Japan, increasing its Treasury holdings by $43.6 billion to $585 billion, the report said. Japan, now the second-largest foreign owner of U.S. government debt, reduced its holdings by $12.8 billion to $573.2 billion.
Chinaâ€™s ownership of U.S. government debt has doubled since July 2005, while Japanâ€™s holdings are down from a peak of $699 billion in August 2004.
Foreign demand for Fannie Mae, Freddie Mac and other U.S. agency debt increased from a month earlier. Purchases of long- term agency debt totaled a net $6.2 billion, compared with net sales of $8.7 billion in August.
The Treasuryâ€™s figures include both agency debt and mortgage-backed securities and arenâ€™t restricted to Fannie Mae and Freddie Mac bonds. Mortgage-backed securities of Ginnie Mae and corporate debt of the Federal Home Loan Bank System are also included in the report.
Stocks plunged and Treasuries rose in September as Treasury Secretary Henry Paulson negotiated for two weeks with Congress over a $700 billion plan to address the worst financial crisis in 70 years.
The U.K., which through London acts as a transit point for international investors, especially those in the Middle East, bought $30.3 billion of Treasuries, bringing holdings to $338.4 billion.