Japan is poised to pass China as the largest US creditor for the first time since August 2008 as growing demand for US government debt reduces borrowing costs for President Barack Obama as the deficit swells.
Japan added $55.3 billion of Treasuries this year, swelling its holdings 7.2 per cent to $821 billion, Treasury data show. China, which overtook Japan in September 2008, cut its stake by $48.1 billion, or 5.4 per cent, to $846.7 billion. Japan made its biggest purchase in 10 months in July, just after China cut its position by the most on record.
The purchases show no slowdown in demand for America’s debt, helping to limit rates on everything from corporate bonds to mortgages as global economic growth slows and the deficit expands to $1.4 trillion. Treasury yields average 1.31 per cent, down from 5.21 per cent at the start of the financial crisis in mid-2007, Bank of America Merrill Lynch index data show.
“The US still has the confidence of investors,” said Carl Lantz, the head of interest-rate strategy in New York at Credit Suisse Group, one of 18 primary dealers of US government securities that trade with the Federal Reserve. “When you’re a reserve manager, it’s not about return on investment, it’s return of investment.”
Even with China’s sales, foreign holdings of US debt have increased $374 billion this year, or 10 per cent, to $4.07 trillion as of July, Treasury data show. At that pace, net purchases would rise to $641 billion in 2010 from $614.8 billion last year and second only to $723.7 billion in 2008.
Record low yields
Yields on two- and five-year Treasuries dropped to all-time lows last week, while the yield on the benchmark 2.625 per cent note due in August 2020 fell to 2.39 per cent in its fourth consecutive weekly decline, from 2.80 per cent on September 10. The price rose last week 1 1/32, or $10.31 per $1,000 face value, to 102, according to BGCantor Market Data.
