Foreign Demand For US Treasury Debt Declines

Published February 15, 2012 2:36PM (EST)

WASHINGTON (AP) — Foreign demand for U.S. Treasury debt fell slightly in December after hitting a record high the previous month. A key reason for the drop was that China, the largest holder of Treasury debt, cut its purchases for a third straight month.

Total foreign holdings dipped 0.4 percent in December to $4.73 trillion, the Treasury Department reported Wednesday. It was the first drop in foreign holdings of Treasury debt since July.

China cut its holdings 2.8 percent to $1.1 trillion. Japan, the second-largest buyer of Treasury debt, increased its holdings 0.3 percent to $1.04 trillion.

U.S. government debt is still considered an ultra-safe investment. And it's been in demand as worries about the European debt crisis have intensified.

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

The nation's borrowing needs will remain high based on the projections in President Barack Obama's latest budget released Monday. The administration estimated that this year's deficit would total $1.33 trillion, marking the fourth consecutive year that the imbalance has topped $1 trillion. The administration projected that the deficit for 2013 would be $901 billion.

The drop in overall Treasury holdings by foreigners came after four consecutive monthly gains.

Britain, the third-largest foreign holder of Treasury debt, cut its holdings 2.6 percent in December to $414.8 billion. A group of 15 oil exporting countries boosted their holdings 0.6 percent to $233.5 billion.

By Salon Staff

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