China Passes Japan as Biggest U.S. Treasuries Holder

China surpassed Japan in September to become the biggest foreign holder of U.S. Treasuries, as foreign investors sought the relative safety of government debt. China leapfrogged Japan, increasing its Treasury holdings by $43.6 billion to $585 billion. Japan, now the second-largest foreign owner of U.S. government debt, reduced its holdings by $12.8 billion to $573.2 billion.

The trend behind it is that China led all foreign official investors in September by posting a net increase in U.S. Treasuries for the sixth month in the past seven. Japan was a net seller of Treasuries for the fourth month in the past six. China’s ownership of U.S. government debt has doubled since July 2005, while Japan’s holdings are down from a peak of $699 billion in August 2004.

It paints a much more positive picture of cross-board investments than expected. China, along with others, is showing more demand than anticipated for U.S. assets. Maybe, I am just guessing that the continuous increase of China’s stake of U.S. Treasuries is under an agreement between Beijing and Washington.

Total net purchases of long-term equities, notes and bonds increased a net $66.2 billion in September from $21 billion the previous month, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $143.4 billion, compared with net buying of $21.4 billion the month before.