Foreign holdings of US Treasurys down slightly in August

AP News
Posted: Oct 16, 2015 5:07 PM

WASHINGTON (AP) — Foreign holdings of U.S. Treasury securities fell slightly in August. The decline came despite China, the biggest foreign owner of U.S. government debt, having slightly increased its holdings.

The Treasury Department reported Friday that total holdings of U.S. government bonds by foreign nations decreased 0.3 percent to $6.10 trillion from $6.12 trillion in July. The August decline marked the fourth drop in five months.

Net sales of U.S. Treasury securities by foreign government institutions reached $41.5 billion, a record low for August.

China increased its holdings in August to $1.270 trillion from $1.269 trillion in July. Japan, the No. 2 holder of U.S. Treasurys, reduced its holdings to $1.197 trillion from $1.201 trillion.

Despite the recent declines, foreign demand for Treasurys is expected to remain strong this year. They are considered one of the world's safest investments.

Two-thirds of the $6.10 trillion in Treasurys in foreign hands are owned by governments, primarily the central banks of other nations. The $4.17 trillion in U.S. debt held by foreign governments in August was up 0.2 percent from $4.16 trillion in July.

Foreign-held U.S. securities represent about one-third of the U.S. government's total debt of $18.1 trillion.

China's central bank has in recent months increased its sales of Treasury securities to raise cash to buttress its currency, the yuan. China unexpectedly and sharply devalued the yuan in August, rattling markets around the globe. The devaluation was aimed at making the tightly controlled currency more market-oriented. Declines in the yuan's value could help struggling Chinese exporters at the expense of foreign competitors and help shore up flagging economic growth.

U.S. Treasury Secretary Jacob Lew has been employing emergency measures to keep the government's total borrowing beneath the current debt ceiling of $18.1 trillion. In a letter to Congress on Thursday, Lew said the lawmakers need to act by Nov. 3 to increase the borrowing limit or the government will be dangerously close to being unable to pay all its bills.

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If the government ran out of cash, it couldn't meet obligations, such as interest payments, Medicare payments and Social Security checks. The government has never defaulted on its obligations, and a severe market reaction likely would follow if it did.

In August 2011, Standard & Poor's downgraded the nation's credit rating for the first time in history because of a prolonged standoff over enacting a new debt limit.

Lew's letter came as closely held talks on the federal budget have shown little evidence of progress. Some Republicans hope to win concessions in exchange for a debt increase, but that is unlikely.