Business - Washington, D.C. China buys U.S. Treasury debt Boosts holdings for second straight month

By Martin Crutsinger

AP Economics Writer

WASHINGTON (AP) -- China boosted its holdings of U.S. Treasury debt for the second straight month as total foreign holdings of U.S. government debt increased.

That development should help ease concerns that lagging foreign demand will force the U.S. government to pay higher interest rates to finance its debt.

China's holdings of U.S. Treasury securities rose by $5 billion to $900.2 billion in April, the Treasury Department said Tuesday. Total foreign holdings rose by $72.8 billion to $3.96 trillion.

China is the largest foreign holder of Treasury securities. The monthly gains in March and April came after six consecutive months when China was either reducing its U.S. holdings or keeping them constant. The stretch raised concerns that China might shift money away from Treasury securities.

The 1.9 percent rise in total holdings of U.S. debt in April followed an even bigger 3.5 percent increase in March.

The sizable gains are being driven by fears that Greece and other European governments could default on their debt.

Fear of possible defaults has sparked a flight to safety which has benefited U.S. Treasury securities. Treasurys are considered the world's safest investment -- the U.S. government has never defaulted on its debt.

The Treasury reported that net purchases of long-term securities, covering U.S. government debt and the debt of U.S. companies, increased by $83 billion in April. That follows a record monthly gain of $140.5 billion in March.

The higher interest in U.S. bonds has helped push interest rates lower. The federal deficit hit an all-time high of $1.4 trillion last year. It is expected to remain above $1 trillion this year and in 2011 as well.

Published: Wed, Jun 16, 2010