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  • bfainsight bfainsight Feb 18, 2010 7:30 PM Flag

    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


    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


    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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