Foreigners increase buying of US Treasury securities as China reduces holdings

One common question we hear from clients is: "what would happen to the US Treasury market if China decided to sell all of it’s Treasury holdings?"  We may never know the answer to this question, but the recent data from the US Treasury shows the Treasury market may be less affected by such a scenario than many anticipate.  US Treasury data shows that since the last debt ceiling debate in August of 2011, China has reduced its holdings of US Treasury securities by $123 billion, while other foreign investors have increased their holdings.   According to an article on Bloomberg, Brazil, Belgium, Luxembourg, Russia, Switzerland, Taiwan, and Hong Kong increased their holdings of US government securities by a collective $264.8 billion since August, 2011.  Japan alone has increased its holdings by 6.9% this year to $1.13 trillion, and is on pace to surpass China as the top foreign creditor by January.  So it seems that despite near record lows in yields, the risk of the fiscal cliff, and another debt ceiling debate, international investors continue to be comfortable holding US Treasury's.