Foreign Demand Drops by Record Amount

Japan now holds most Treasuries; China cuts holdings of U.S. Treasuries

The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.
The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.
The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.The big drop in China's holdings meant that it lost the top spot in terms of foreign ownership of U.S. Treasuries, dropping to second place behind Japan.
For all of 2009, foreign holdings of U.S. Treasuries dipped by $500 million. In 2008, foreigners had increased their holdings of U.S. Treasuries by $456 billion as a global financial crisis triggered a flight to the safety of U.S. government debt.

That flight to safety had driven down the interest rates that the government was having to pay on its debt to record lows with rates on some short-term securities dipping into negative territory for brief periods.

Still, the data showed the United States attracted overall net inflows of $60.9 billion. Treasuries of all maturities saw a net inflow of $69.9 billion, and net inflows into stocks rose to $20.1 billion from $9.6 billion in November. But U.S. corporate debt suffered a net outflow.Win Thin, a currency strategist at Brown Brothers Harriman in New York, called the data "a cause for modest concern that bears watching," but added, "we do not think the big global reserve managers are dumping U.S. dollar assets on a sustained basis."

this also mentioned me about what we talked about in the class today,about Greece, euro assets are not an attractive alternative with markets worried that Greece may not be able to make the spending cuts necessary to get its swollen debt under control.European Union ministers have offered Greece a pledge of support but stressed that Athens may need to commit to even more drastic spending and wage cuts.

what do you think about foreign countries holding U.S. Treasuries? Will this situation benefit for both U.S. and the foreign countries ?