Foreign Demand For US Debt Weakens

US Treasury bonds are a mechanism for the country to raise financing from foreign and domestic sources. The bonds promise that the holder can redeem the bonds at maturity for a given level of interest.

According to the Treasury, foreign holdings of the bonds fell by $53bn in December, a record amount. The Chinese reduced their holdings by $34.2bn, reducing the amount of US debt that they hold for the second straight month and relinquishing its position as the nation holding the largest amount of US debt to Japan.

China currently holds $755.4bn in US bonds. The Chinese have questioned both the role of the Dollar as the world’s reserve currency and whether the US can maintain its deficit which is predicted to hit $1.56tn later this year.

Falling demand for US Treasury bills may mean that the government may need to increase their returns to attract investors.