Oil Money Flows into US Bonds

Oil producing nations especially are attracted to US bonds because they are easy to trade and because they are carrying slightly higher yields than they did in 2003.

Published: 16-Dec-2004

At a time of growing concern that Asian central banks and other overseas investors are losing their appetite for US securities, rising demand, particularly for bonds, is coming from an unexpected source: oil-producing nations.

The 16 major oil-exporting countries - including Middle Eastern nations, Russia, Mexico and Venezuela - are net buyers of $US50billion ($66billion) in US bonds and stocks this year through September, according to latest figures from the US Treasury Department. That number has more than quadrupled from the same period last year, and there is evidence that these investors are stepping up their purchases of some US securities even as they diversify into other markets.

While oil-exporting nations have received less attention for their role as investors, collectively the total value of their purchases of US securities this year is more than twice that of China. The 16 countries represent just more than 7 per cent of the total investment flowing into the US market, the largest share these nations have had since the Treasury began breaking down this data in 1996. Even after a bit of a fall-off in foreign buying in the third quarter, demand still looks healthy.

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