17 Feb 2010

Drop in demand for US debt

10:00 am on 17 February 2010

Foreign demand for US Treasury bonds and notes fell by a record amount in December.

The Treasury said foreign holdings of US debt dropped by $US53 billion, surpassing the previous record set last April. China cut its holdings by $US34.2 billion.

The BBC reports that the United States might have to pay more to borrow, just as the government has to fund a record budget deficit.

The Treasury said net purchases of long-term stocks, bonds and notes increased by $US63.3 billion in December, down from $US126.4 billion in the previous month.

China was a net seller for a second consecutive month. Its bond holdings amounted to $US755.4 billion in December, down from $US789.6 billion the previous month.

China has previously questioned whether the US bonds are safe and whether it can sustain its deficits. It has also questioned the US dollar's role as the world's reserve currency.

The federal deficit for 2010 is expected to be a record $US1.56 trillion, surpassing last year's record of $US1.4 trillion.