Foreign holdings fell during debt ceiling talks

By Martin Crutsinger

Associated Press

Published: Monday, Aug. 15 2011 9:03 a.m. MDT

WASHINGTON — Foreign investors cut their holdings of U.S. Treasury debt in June for the first time in more than a year. The decline came at a time of anxiety about whether the United States would raise its borrowing limit.

China, the biggest buyer of U.S. Treasury debt, increased its investment for a third straight month. But Japan, the second-largest buyer, along with Brazil, Russia, Hong Kong, and a group that includes the Bahamas, Bermuda, the Netherlands and the Cayman Islands cut their investments. Overall foreign holdings dropped 0.4 percent to $4.5 trillion.

Congress and the Obama administration reached a deal on Aug. 2 that allowed an increase in the borrowing limit. The agreement came hours before the U.S. faced a potential default on its debt.

The deal also included a two-stage process to cut $2.1 trillion from the deficit over the next decade. That fell short of the $4 trillion in cuts that Standard & Poor's said was needed to achieve a credible deficit-reduction plan. As a result, S&P downgraded the U.S. government's credit rating from AAA to AA+.

The June dip in overall foreign holdings represented a $15.1 billion drop from private investors and a $1.7 billion decline from government investors, such as central banks. Foreign governments account for about 72 percent of total foreign holdings of U.S. Treasury debt.

The decline by private investors included a record $18.3 billion drop in net purchases of long-term Treasury securities.

China increased its holdings 0.5 percent to $1.166 trillion.

Japan trimmed its holdings 0.2 percent to $911 billion.

Britain, the third-largest foreign holder of Treasury securities, boosted its investment 0.8 percent to $349.5 billion.

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