http://www.theage.com.au/business/china-losing-appetite-for-us-debt-20100217-ocil.html
China losing appetite for US debt
February 17, 2010
Ads by Google
Learn to Trade CFDs
5 Easy Steps to CFD Trading.Free Practice Account Included. GFT
www.GFT.com.au
China's ownership of US government debt fell in December by the most since 2000, allowing Japan to regain the position as the largest foreign holder of Treasury securities.
Japan's holdings rose 1.5 per cent in December to $US768.8 billion ($858 billion) while China's dropped 4.3 per cent to $US755.4 billion, Treasury Department figures today showed. China allowed its short-term Treasury bills to mature and replaced them with a smaller amount of longer-term notes and bonds, the data showed.
China, with the world's largest central bank reserves, may be moving money to other investments from the relative safety of Treasuries as the US runs record budget deficits, economists said. China's Treasury holdings peaked at $US801.5 billion in May, and net sales in November and December were the first consecutive months of reductions since late 2007.
''If this scale of selling is sustained, then it would suggest that China is taking larger steps to diversify than it has in the past,'' said Win Thin, a senior currency strategist in New York at Brown Brothers Harriman, which manages about $US40 billion in assets.
While today's data are ''cause for modest concern that bears watching, we do not think the big global reserve managers are dumping US dollar assets on a sustained basis,'' Thin wrote in a research note after the report.
Bond yields
The yield on 10-year Treasuries climbed one basis point to 3.67 per cent as of 10:30 a.m. in Tokyo, according to data compiled by Bloomberg. Treasuries earlier rose after Federal Reserve Bank of Kansas City President Thomas Hoenig said the US must take steps to reduce spending and increase revenue.
China had been the largest creditor abroad to the US since September 2008, when its holdings of Treasuries surpassed those of Japan. China's holdings of Treasury bills have shrunk to $US69.7 billion, about a third of the $US210.4 billion held in May, as the outlook for a recovery in the US remained unclear.
Chinese officials have over the past year expressed concern about an increase in US debt to fund the swelling fiscal deficit. Premier Wen Jiabao said in March 2009 he was ``worried'' about China's Treasury holdings and wanted assurances that the nation's US investments were safe, and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.
Budget gap
Treasury Secretary Timothy Geithner has sought to assure China that the US will close the budget gap and boost national savings over time.
Tension between the US and China has risen in the past few months over censorship of Google Inc., climate change and arms sales to Taiwan. President Barack Obama plans to meet the Dalai Lama in Washington on Feb. 18 even after China called on the US to cancel the gathering.
Total foreign holdings of Treasuries rose 17 per cent in 2009 to $US3.61 trillion as outstanding Treasury debt increased 25 per cent to $US7.27 trillion, according to Treasury data. Half of US debt is held by foreign investors, down from a peak of 55.7 per cent in April 2008.
''Foreign buying overall seems to have slowed, and what we've seen is the trend toward shifting bill holdings into nominal coupon Treasuries rather than an increase in overall Treasury holdings,'' said Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., one of 18 primary dealers that trade with the Federal Reserve. ''That's something the Treasury should be watching closely, the Treasury and the markets.''
Holdings of Treasury bills rose 17 per cent in 2009 to $US534.3 billion.
US investors have increased their holdings of Treasuries as they have increased their savings rate to 4.8 per cent at the end of 2009, according to the Commerce Department. The average savings rate for the previous five years was 2.1 per cent.
US households have owned a quarterly average of $US714.7 billion of Treasuries through the end of September 2009, compared with $US242.3 billion for the same period in 2008, Fed data show.
