Foreign Holdings of U.S. Debt Hit Record $5.48 Trillion

WASHINGTON (AP) -- Foreign ownership of U.S. Treasury securities rose to a record level in October, a sign that overseas investors remain confident in U.S. debt despite a potential budget crisis.

Total foreign holdings of U.S. Treasurys rose to $5.48 trillion in October, the Treasury Department said Monday. That was up 0.1 percent from September. Still, the increase of $6 billion was the weakest since total holdings fell in December 2011.

China, the largest holder of U.S. government debt, increased its holdings slightly to $1.16 trillion. Japan, the second-largest holder, boosted its holdings by a smaller amount to $1.13 trillion. Brazil, the country with the third-largest holdings, increased its total to $255.2 billion.

The new figures show that investors are still seeking the perceived safety of U.S. Treasurys, even as lawmakers and President Barack Obama remain at odds over whether to raise the U.S. borrowing limit as part of a broader budget deal.

But economists also said the slowdown in purchases of Treasury securities suggests that investors are more willing to buy other debt, including from European governments. That might indicate that fears of a financial catastrophe in Europe are easing.

The federal government is expected to hit its borrowing limit of $16.39 trillion by the end of December. Treasury Secretary Timothy Geithner has said he would resort to the same financial maneuvers he used in the last debt standoff in 2011 to keep the government from defaulting on its debt.

But these operations will buy only a few weeks' time, until late February or early March. By then, the government will face the prospect of a first-ever debt default if Congress doesn't raise the debt ceiling.

After the last debt standoff, Standard & Poor's downgraded the government's credit rating on long-term securities one notch from the highest level of AAA to AA+. It was the first-ever downgrade of U.S. government debt.

Last month, Fitch Ratings said Obama will need to quickly reach a budget agreement with Congress over the "fiscal cliff" or risk losing Fitch's AAA rating on U.S. debt.

The fiscal cliff refers to the collection of tax increases and spending cuts set to take effect in January unless a deal is reached. Economists have warned that the U.S. economy would be pushed into a recession sometime next year if the fiscal cliff isn't averted.

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