Foreign Treasury holdings fell during debt debate

By Martin Crutsinger

Associated Press

Published: Friday, Sept. 16 2011 8:30 a.m. MDT

WASHINGTON — The two biggest foreign buyers of U.S. Treasury securities kept investing during a tense fight in Washington over raising the government's borrowing limit. But overall foreign holdings fell for only the second time in more than two years, a sign that some investors worried about a possible default.

The Treasury Department's monthly report issued Friday showed that China, the biggest buyer of U.S. Treasury debt, increased its investments for a fourth straight month. Japan, the second-largest buyer, also invested more after cutting holdings the previous month.

But total holdings dipped 0.4 percent to $4.48 trillion in July, the second decline since April 2009. Russia, India and the Caribbean banking centers, which includes the Bahamas and Bermuda, all trimmed their holdings.

Congress and the Obama administration reached a deal on Aug. 2 to increase the nation's borrowing limit by more than $2 trillion. The agreement was approved just hours before the U.S. faced a potential default on its debt.

Analysts said the near-default rattled some investors, especially those overseas. Days after the deal was reached, Standard & Poor's downgraded the credit rating on long-term U.S. debt one notch from AAA to AA+.

The biggest investors kept buying. China's holdings rose 0.7 percent to $1.17 trillion. Japan's holdings increased 0.4 percent to $914.8 billion. The United Kingdom, the third-largest buyer, boosting its holdings 1.4 percent to $352.5 billion.

Net purchases of long-term securities, a category that includes not only U.S. government debt but also bonds sold by U.S. corporations, increased $9.5 billion in July.

But others appeared to be concerned. Caribbean banking centers cut its holdings 12.1 percent to $124.5 billion; Russia slashed its investments 8.7 percent to $100.2 billion.

The decline in foreign holdings of U.S. Treasury securities came in the private sector. Those holdings dipped 1.3 percent to $1.24 trillion in July. The larger holdings by foreign governments and central banks were down a slight 0.1 percent to $3.24 trillion in July. Governments account for roughly 72 percent of total foreign holdings of U.S. Treasury debt.

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