Wednesday, October 10, 2007

Treasuries Fueled by Petrodollars From Mideast Funds

by Daniel Kruger from Bloomberg

OPEC members increased their holdings of Treasuries 12% this year through July to $123.8 billion, Treasury Department data show. The prospect that OPEC's share of U.S. debt is growing is based on the 31% rise in oil since December, which will raise OPEC revenue 5.1% to $635 billion this year and 9.4% to $695 billion in 2008, according to estimates by the U.S. Department of Energy. Petroleum exporters are adding to holdings of U.S. debt three times faster than other foreign investors, the Treasury data show ... Oil exporters eclipsed Asian nations last year as the biggest source of global capital for the first time since the 1970s, NY-based consulting company McKinsey & Co found. At $70 a barrel, $628 billion of fresh petrodollars will flood through global financial markets yearly ... The risk for bond investors is that OPEC members may seek better returns elsewhere after Treasuries gained 3.8% last quarter, including reinvested interest.

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