China, others still buying up US Treasury debt

China boosted its holdings of United States Treasury debt for the second straight month as total foreign holdings of US government debt increased.

That development should help ease concerns that lagging foreign demand will force the US government to pay higher interest rates to finance its debt.

China's holdings of US Treasury securities rose by US$5 billion to US$900.2 billion in April, the Treasury Department said Tuesday.

Total foreign holdings rose by US$72.8 billion to US$3.96 trillion.

China is the largest foreign holder of Treasury securities. The monthly gains in March and April came after six consecutive months when China was either reducing its US holdings or keeping them constant.

The stretch raised concerns that China might shift money away from Treasury securities.

The 1.9 per cent rise in total holdings of US debt in April followed an even bigger 3.5 per cent increase in March.

Japan, the number-two foreign holder of Treasury securities, also increased its holdings in April by US$10.6 billion to US$795.5 billion.

Fear-driven gains

Other countries registering gains in their holdings in April were the United Kingdom and various oil-exporting nations.

The sizeable gains are being driven by fears that Greece and other European governments could default on their debt.

On Monday, Moody's Investors Service slashed Greece's credit rating to junk status, the latest blow to the debt-ridden nation.

Fear of possible defaults has sparked a flight to safety which has benefited US Treasury securities. Treasurys are considered the world's safest investment - the US government has never defaulted on its debt.

The Treasury reported that net purchases of long-term securities, covering US government debt and the debt of US companies, increased by US$83 billion in April. That follows a record monthly gain of US$140.5 billion in March.

The higher interest in US bonds has helped push interest rates lower.

It's a welcome development for the government, which faces the task of financing record federal budget deficits.

The federal deficit hit an all-time high of US$1.4 trillion last year. It is expected to remain above US$1 trillion this year and in 2011 as well.

- AP