Foreign Demand for U.S. Debt Plunges as China Dumps Treasurys

The global appetite for U.S. financial assets slowed markedly in December, and demand for federal debt fell by a record amount as China dumped more than $34 billion in American IOUs, the Treasury Department said Tuesday.

If demand for U.S. debt continues to wane, it could get more expensive for the U.S. to fund its record deficits because it would have to offer higher interest rates to entice buyers.China cut its holdings of Treasury securities for a second straight month, making Japan the biggest owner of Treasurys , according to government data. Japan's stockpile of Treasury securities stood at $769 billion in December, while China's came to $755 billion, down from $790 billion held in November. Total foreign holdings of Treasury securities dropped by $53 billion in December, breaking the old record of a $44 billion decline set in April 2009.

"This data is only going to add to second-guessing of Chinese behavior and raise concerns that they are not showing much enthusiasm for U.S. dollar paper," Alan Ruskin, chief international strategist at RBS Securities, told clients.

Net foreign purchases of long-term securities were $63.3 billion, the Treasury said, down from $126.4 billion in November. Net foreign purchases of long-term U.S. securities were $82.2 billion, comprising $62.6 billion in net purchases by private foreign investors and $19.6 billion in net purchases by foreign official institutions.
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