China reduces US debt holding by less than 0.5 %

China, the largest foreign buyer of US Treasury securities, trimmed its holdings by $5.4 billion to $1.26 trillion between April and March, as foreign investors generally dumped US government debt, the US Treasury said.

The reduction in China's US debt holdings by just under half of one percentage point was part of the first overall drop in foreign demand for US Treasuries in more than a year. Foreigners' flight from US government debt in April came as signs of a US economic recovery prompted talk among US Federal Reserve officials about when the central bank should begin to cut monthly purchases of Treasury debt and mortgage-backed securities.

Japan, the second-largest buyer, reduced its holdings by 1.2 percent to $1.1 trillion, the Treasury said in its monthly report on cross-border capital flows.

"Demand for US securities was much weaker in April," TD Securities strategist Gennadiy Goldberg told Reuters. Goldberg called the scope of the sales noted in the latest report "somewhat surprising", given uncertainty in Europe tied to a bailout of troubled Cypriot banks.

Private foreign investors sold a record net $30.8 billion in long-term Treasury bonds and notes. Foreign official holders of long-term US debt sold out of $23.7 billion, the highest outflow since November 2008, at the height of the financial crisis.

Even with the reductions, foreign-held US Treasury debt still climbed 8.6 percent from a year earlier, on purchases of debt issued or guaranteed by big US mortgage financing agencies such as Fannie Mae, the Treasury said.

michaelbarris@chinadailyusa.com