China boosts holdings of US Treasury debt

08:22, May 18, 2010      

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China boosted its holdings of US Treasury debt for the first time in six months. That development could ease concerns that lagging foreign demand will force the US government to pay higher interest rates to finance its debt.

The US Treasury Department reported Monday that China's holdings of US Treasury securities rose 2 percent to $895.2 billion in March , the first increase since last September.

Total foreign holdings of Treasury securities rose 3.5 percent to $3.88 trillion.

The government reported that net holdings of long-term securities, which includes the debt of US companies as well as government debt, rose $140.5 billion in March, the largest one-month gain on record. It surpassed the old record of a net increase of $135.8 billion in May 2007.

The big increase was influenced by two factors: a flight to safety by investors increasingly worried about the debt crisis in Europe; and a rebounding US economy which has sparked greater interest by foreigners in purchasing US corporate debt.

Investors have grown nervous about the ability of Greece and other heavily indebted nations to repay their debt. Last week, European nations and the International Monetary Fund assembled a nearly $1 trillion support package to convince investors that their bond holdings are safe. But markets have remained nervous.

Gregory Daco, an economist at IHS Global Insight, said as the Greek debt crisis began to intensify in March, foreign investors sought refuge in the safety of US Treasury bonds and notes. He said the rebound in the US economy was also helping to attract investors to bonds issued by US companies.

The overall US economy, as measured by the gross domestic product, grew at an annual rate of 3.2 percent in the first three months of this year. It was bolstered by the strongest gain in consumer spending in three years.

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