US Treasury holdings top $1,000bn
By Päivi Munter in London and Jenny Wiggins in New York
Published: November 10 2003 20:13 | Last Updated: November 10 2003 20:13
Holdings of US Treasury and agency bonds by foreign central banks have for the first time exceeded $1,000bn, calming fears that a rise in Asian currencies against the US dollar would prompt mass selling of US assets.
The US Federal Reserve's latest weekly data show that foreign central banks hold $799bn in Treasury and $203bn in quasi-governmental agency bonds.
There were concerns this year that a rise in the value of the yen against the US dollar or a change to China's pegged exchange rate would lower Asian countries' income and reduce their purchases of US assets. Japan and China use the income they earn from exporting goods to the US to buy US debt, helping to fund the US's current account deficit.
Despite the easing of concerns, a senior official at the Thai central bank on Monday warned investors of severe disruption to bond markets, if Asian economies slow, thus forcing their central banks to offload US assets. "Should Asian economies falter in the future, this could affect every country, including the United States," said Tasna Rajatabhothi, an assistant governor at the Thai central bank.
The topic was discussed at meeting of senior central bank officials, hosted by the Bank for International Settlements.
But fears of selling have so far not been borne out. Since the beginning of this year, foreign central banks' holdings of Treasuries and agency bonds have increased by $150bn, helping underpin the market. Foreign investors now own almost a half of liquid Treasury bonds.
The biggest foreign holder of US Treasuries is the Bank of Japan which, in the third quarter, spent a record Y7,551bn on currency interventions.
The Bank of Japan's practice appears to defy a statement from the G7 industrialised countries in September, calling for more flexible exchange rates, which many analysts interpreted as being aimed at Asian central banks.
Asian central banks have driven the increase in foreign holdings of US government debt.
According to data on the top 20 countries of origin, Asian holdings in Treasury bonds rose by more than $100bn to $744.9bn between January and August. By comparison, European bond holdings totalled $275.2bn by August.
Ian Douglas, fixed-income analyst at UBS Warburg, said:
"The $150bn increase in [Asian] central bank holdings is the equivalent of six two-year Treasury auctions."
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