Foreign holdings of US Treasury debt rose to record

WASHINGTON – Foreign holdings of U.S. Treasury securities rose in December to a record high despite cutbacks by China and Japan, the two biggest foreign owners of Treasury debt.

Foreign ownership of Treasury securities increased 0.7 per cent in December to a fresh record of $6.17 trillion, up from $6.13 trillion in November, the Treasury Department reported Tuesday.

China, the biggest foreign holder of Treasury debt, reduced its holdings 1.5 per cent to $1.25 trillion. Japan, No. 2 foreign holder of U.S. government debt, trimmed its holdings by 2 per cent to $1.12 trillion.

The declines were offset by Caribbean banking centres such as the Bahamas and the Cayman Islands, which boosted their holdings by 4.5 per cent to $351.6 billion. Ireland and Switzerland also expanded their holdings.

The national debt now stands at a record $19 trillion. Of that amount, $13.7 trillion is publicly traded on financial markets and $5.3 trillion is debt that the government owes itself in the form of holdings in trust funds such as the Social Security trust fund.

Foreigners own about two-fifths of the debt that is publicly traded. Of that amount, $4.1 trillion is held by foreign governments, primarily central banks, who see Treasury securities as one of the world’s safest investments.

In the budget President Obama released last week, his administration projected that annual budget deficits over the next decade will total $6.1 trillion. The Congressional Budget Office projects even larger deficits over the next decade, totalling $9.4 trillion, as the retirement of the baby boomers forces the government to spend rising amounts of benefit programs such as Social Security and Medicare.

Projected deficits of that size have raised concerns that Washington policymakers will soon need to take action to either raise taxes or cut government spending to keep the deficits at a manageable size that will not outstrip demand in financial markets.