A record drop in foreign holdings of U.S. Treasury bills in December is raising concern a waning appetite for U.S. debt could push up interest rates and weaken a fragile U.S. recovery.
The Treasury Department said this week foreign holdings of U.S. Treasury bills fell by a record $53 billion in December. That topped the previous record drop of $44.5 billion in April 2009.
China fell behind Japan to move back to its previous spot as the second-biggest holder of U.S. Treasuries, in a potential warning the Chinese are growing tired of complaints about its trade policies and worried about record-high U.S. budget deficits.
Should foreign investors sell significant U.S debt, the price of government notes and bonds would fall and interest rates paid on everything from mortgages to credit cards could rise.
Still, some economists doubt the recent drop in foreign holdings of short-term Treasuries signifies unease about holding U.S. debt. The U.S. Treasury disclosed this week net purchases of longer-term Treasury debt rose in December by $70 billion.
Others see hints of a growing trend. After all, China has sold nearly $45 billion in Treasury debt over the past five months.
On another note: in looking at the data, I was confused how Britain and Japan both increased their U.S. debt so significantly. The two were the largest net buyers of Treasuries last year. Considering the U.K. has huge levels of debt and is spending large sums on its economic bailout and Japan continues to confront serious economic problems, how could they afford to spend so much cash?
Anyone have ideas?
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