Foreign holdings of US Treasury debt hit record

Friday, March 9, 2012, Vol. 36, No. 10

WASHINGTON (AP) — Foreign demand for U.S. Treasury debt rose to a record high in January. China, the largest buyer of Treasury debt, increased its holdings for the first time in six months.

Total foreign holdings rose 0.9 percent in January to $5.05 trillion, the sixth consecutive monthly increase, the Treasury Department reported Thursday.

China boosted its holdings 0.7 percent to $1.16 trillion. Japan, the second-largest buyer of Treasury debt, increased its holdings 2 percent to a record $1.08 trillion.

U.S. government debt is considered one of the safest investments. Demand for it has increased as Europe's debt problems have intensified.

The demand has remained strong despite the first-ever downgrade of the government's credit rating last August. Standard & Poor's lowered its rating on long-term Treasury debt one notch from AAA to AA+ following a prolonged debate in Congress over increasing the nation's borrowing limit.

The nation's borrowing needs will remain high based on projections of future deficits. The Congressional Budget Office on Tuesday released a new estimate that the government will run a $1.2 trillion deficit for the current budget year, which ends Sept. 30. That would mark the nation's fourth straight trillion dollar-plus deficit.

In the Treasury report, Britain, the third-largest holder of Treasury debt, had a sizable 26.6 percent increase in its holdings to $142.3 billion. However, much of that gain probably reflected purchases of Treasury securities that were made by British banks for investors in other countries. The figure is likely to be reduced in coming months with the gain reallocated to other nations.