China cut its holdings of United States Treasury debt for a second straight month in June while the holdings of Japan and Britain rose.

China's holdings fell by US$24 billion to US$843.7 billion, a drop of 2.7 percent, the US Treasury Department said yesterday in a monthly report on debt holdings.

Total foreign holdings of Treasury securities rose US$45.6 billion to a total of US$4 trillion, an increase of 1.2 percent.

The debt figures are being closely watched at a time when the US government is running up record annual deficits. A drop in foreign demand would lead to higher interest rates in the US. The yield on Treasuries rises when fewer people invest in them.

It would start with the US government paying more interest on its US$13.3 trillion national debt and then ripple through the economy. Consumer loans such as mortgages and auto loans track the yields on Treasuries, so they could rise, too.

So far, interest rates in the US have remained extremely low. A weak economy has depressed borrowing by the private sector and the Federal Reserve has kept a key interest rate at a record low of zero to 0.25 percent in a bid to spur stronger growth.

US interest rates have also been kept low by the European debt crisis in the spring. That triggered more investment in US Treasuries, which are considered the safest investment in the world because the US government has never defaulted on its obligations.

China is the largest foreign holder of Treasury securities. The US$24 billion decline in China's holdings in June followed a US$32.5 billion drop in May. China's holdings had hit a high for this year of US$900.2 billion in April.

Japan, the second-largest foreign owner of Treasury bonds, raised its holdings in June to US$803.6 billion. That's a rise of US$16.9 billion or 2.5 percent. Britain's holdings rose 3.5 percent to US$362.2 billion.

The Treasury report said that net purchases of long-term securities, a category that covers not only US government debt but also debt of US companies, increased by US$44.4 billion in June after climbing US$35.3 billion in May.

(Shanghai Daily August 17, 2010)