Foreigners Cut Treasury Stakes
WASHINGTON (AP) -- A record drop in foreign holdings of
U.S. Treasury bills in December sent a reminder that the
government might have to pay higher interest rates on
its debt to continue to attract investors.
China reduced its stake and lost the position it's held
for more than a year as the largest foreign holder of
Treasury debt. Japan retook the top spot as it boosted
its Treasury holdings.
The Treasury Department said foreign holdings of U.S.
Treasury bills fell by a record $53 billion in December.
That topped the previous record drop of $44.5 billion in
April 2009.
Private analysts, though, were split over the
significance of the decline. Some doubted that the drop
in foreign holdings of short-term Treasuries signified
growing unease about holding U.S. debt. They noted that
net purchases of longer-term Treasury debt rose in
December by $70 billion.
But other economists saw the decline as a warning
signal. They fear that foreigners, especially the
Chinese, have begun to worry about record-high U.S.
budget deficits and are looking to diversify their
holdings.
A sustained drop in foreign demand for
dollar-denominated assets could lead to higher U.S.
interest rates and falling stock prices. Those trends
could threaten the U.S. recovery. But economists said
they see no such evidence yet.
The Treasury report showed that China reduced its
holdings of Treasury securities by $34.2 billion in
December.
Alan Meltzer, an economics professor at Carnegie Mellon
University, said China's shift should be a wake-up call
for Washington.
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