Foreign demand for U.S. Treasury securities slipped by a record amount in December according to government reports released on Tuesday. China alone cut back holdings by $34.2 billion.
If the reductions in holdings persist the government may have no choice but to make elevated interest payments, a less than desirable occurrence considering current federal deficits.
The likelihood of this doesn’t appear to be too far off. Foreign holdings of U.S. Treasury securities tumbles by $53 billion in December according to the Treasury Department, a particularly alarming figure when considering the previous record of $44.5 billion in April of last year.
In addition to China’s drop in U.S. Treasury securities, Japan, the second largest holder, also reduced its holdings by $11.5 billion. Even still, Japan usurped the top spot in foreign ownership from China after their own reduction.
Japan, after the drop, has $768.8 billion in holdings as compared with China’s new number of $755.4 billion.
In addition to the drop in government holdings, private investor holdings also declined by $700 million in December.
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