July debt debate dents foreign taste for US assets

Foreigners unloaded US securities for a third straight month in July as lawmakers clashed over raising the country's borrowing limit, according to data from the US Treasury Department on Friday. Most selling was concentrated in short-term instruments, which contributed to an overall net outflow of $51.8 billion in July, up from net sales of $29.4 billion the prior month.
"The debt ceiling debate caused huge uncertainty and the prospect of the United States losing its AAA credit rating caused an exodus out of US dollar assets in July," said Kathy Lien, head of research at GFT Forex in New York. A bipartisan committee of lawmakers is scheduled to meet later this year in an attempt to trim at least $1.2 trillion from annual US budget deficits over a 10-year period.
John Chambers, the head of S&P's sovereign ratings committee, reiterated this week that there is a one-in-three chance of another downgrade over the next six to 24 months, which he said could be triggered if the committee doesn't deliver on deficit reduction. Both private investors and central banks were net sellers of Treasury bills to the tune of $33.8 billion in July, the biggest outflow from bills since January 2010.