China tops Japan as No. 1 holder of U.S. Treasury debt

Like nearly everyone else, the Chinese wanted the security of holding short-term U.S. Treasury bills in September as markets worldwide crumbled.

With China’s purchases of T-bills that month, the country surpassed Japan to become the No. 1 owner of U.S. Treasury debt, according to government data reported today on foreign investment in U.S. securities.

The September numbers overall confirm that foreigners still regard the U.S. as the best haven in times of international financial crisis.

Net foreign purchases of long-term U.S. securities, including stocks and bonds, totaled $66.2 billion in September, up from $21 billion in August and $18.4 billion in July, Treasury data show.

As the global credit crisis worsened, slamming stocks, commodities and other markets, many investors put safety of principal above all other considerations. That pushed them into short-term U.S. Treasuries.

China increased its Treasury investments by $43.6 billion in September, lifting the total to $585 billion and taking the No. 1 spot among all foreign holders.

Japan, by contrast, reduced its Treasury holdings by $12.8 billion, to $573.2 billion.

China’s Treasury purchases in September were focused on T-bills, such as three- and six-month issues. The Chinese boosted their T-bill holdings by $39.4 billion in the month.

Any capital inflow to the U.S. helps us finance our budget deficit, but the Treasury’s great need in the next year will be to line up buyers -- including foreigners -- for longer-term notes and bonds.

The U.S. may have to issue as much as $2 trillion in debt over the next four quarters to pay for the financial-system bailout, the war efforts in Iraq and Afghanistan and economic stimulus programs, as I noted in my weekend column in The Times, here.

The problem with huge cash inflows into short-term Treasury issues is that the money could flow out as easily as it flowed in, as T-bills mature in the next year, notes George Goncalves, Treasury strategist at Morgan Stanley in New York.

For a list of the largest foreign owners of U.S. Treasury debt, go here.

Photo: Statue of Alexander Hamilton, outside the U.S. Treasury building in Washington (Chip Somodevilla / Getty Images)

Comments

[buz]

Emerging markets are no longer completely corrupt backward outposts. Many now offer viable alternatives for investment whcih will compete the US for capital. When the dust from this recent market collapse settles I suspect that money will flow into these emerging areas and out of low paying US treasury bills.

[John McLeod]

Lining up buyers for the long-term paper indeed. Meanwhile Fannie's and Freddie's bills are yielding a fat premium (putting pressure on mortgage rates) and their long stuff is barely moving. The NY Fed has lovely numbers on the holdings of both types of bond -- treasuries and agencies -- by the critically important foreign central banks. The story in pictures is compelling and we've been following the weekly updates at our blog.

Yes cenbanks have been gorging on treasury bonds recently (the chart looks almost vertical) but it could turn around in a flash. Agencies did after 7/7.

[Agnostic%20Free%20Thinker]

This country needs to pass a balanced budget amendment to the US constitution, otherwise politicians will have no incentive to control the ever rising deficit which will eventually bankrupt this country. This country won't fall because it is invaded by some foreign army -- it will be taken over financially.

[martscan]

Governments are not businesses. Deficits, per se, are not the bugaboos most ascribe to them.

[sobelle]

So what else is new ? USA is rife with spie's from china and our goverment is to blame for the "open door for anyone that want to bleed the "USA" OF VITAL SECURITY INFO. "PROVEN" NOT HEARSAY !!!

[Evelyn Guzman]

So China is now the main creditor of the US? I wonder what the implication of this will be. Will China have a stronger say on things about economics and other issues? And what will happen if China decides to get out of the US bonds. I hate to think what the scenario will be like.

Evelyn Guzman
Debt Challenger

[Gustavo Corral]

Having all that debt in short term T-bills gives China the power to recessionize the U.S economy. How? The moment it stops buying or rolling over its debt and decides to cash out ( i.e. allow the short term debt to mature and take the cash ) it will leave the FED scrambling for people to lend it money. Net result: a spike in interest rates and insta-recession.

For now everyone wants to lend to us, but that may change in a heartbeat.