China ups holdings of US debt in April

11:33, June 17, 2011      

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China, the largest foreign holder of United States Treasuries, bought more federal bonds in April for the first time since October despite concerns over the US debt level.

China's purchases of US debt rose $7.6 billion to $1.15 trillion - the first month-on-month increase since its holdings reached $1.18 trillion in October, according to the Treasury International Capital report, known as TIC. China boosted its holdings after selling most of its bonds for five straight months.

Overall, foreign nations were net buyers of US long-term securities, with purchases rising by $30.6 billion in April.

Japan remained the second-largest foreign buyer of US debt, holding $906.9 billion at the end of April, down $1.0 billion from March.

The US hit its $14.3 trillion debt limit on May 16. With the debate on raising the debt limit heating up between the White House and Congress in Washington and an Aug 2 deadline to decide on the limit looming, foreign investors of US Treasuries have been watched closely for any new decisions.

Federal Reserve Chairman Ben Bernanke warned Tuesday that the debt ceiling shouldn't be used as a bargaining chip to force "necessary and difficult fiscal policy adjustments".

"We should avoid unnecessary actions or threats that risk shaking the confidence of investors in the ability and willingness of the US government to pay its bills," Bernanke said.

Global rating agency Moody's recently warned that it would consider putting the US' credit rating on review if the White House and Congress don't reach an agreement on raising the debt limit by mid-July. Moody's has warned that it may downgrade the US' top-notch credit rating.

Steven Hess, senior credit officer at Moody's Investors Service, told China Daily that these kinds of reviews do not happen often.

"We just want to have the market on notice that the rating will go down if an interest payment is missed," Hess said.

But he said bond holders would not experience any significant loss in their holdings.

"Even if an interest payment is missed, it will be made up within just a few days. It will not go on for long because it is more or less due to a particular political circumstance," Hess said.

What the review does, Hess said, is warn the US government to deal swiftly with deficit and budget problems in an adequate way.

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Source:China Daily
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