US debt holdings of foreign central banks continue to grow

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This post is a guest contribution by Asha Bangalore* of The Northern Trust  Company.

Foreign central banks’ holdings of US Treasury securities and agency debt at the Federal Reserve continue to advance. During the week ended March 17, foreign central banks held $3.00 trillion at the Federal Reserve. Of this, roughly 75% of it is held in the form of Treasury securities and the remaining 25% is Fannie Mae and Freddie Mac securities. Although the pace of acquisition has slowed compared with the peak period of crisis, holdings of US Treasury securities has grown at close to 25% on a year-to-year basis (see chart 1) in the past few weeks.

nt2002-pic1

At the same time, holdings of Fannie Mae and Freddie Mac securities have declined from a year ago (see chart 2).

nt2002-pic2

The main conclusion is that US Treasury securities are still attractive despite the headlines in the financial press about the growing deficit and debt problems of the US economy.

Source: Northern Trust – Daily Global Commentary, March 19, 2010.

* Asha Bangalore is vice president and economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

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