Monday, 29 November 2004

Central banks reduce US debt holding

According to a Reuters story, the Federal Reserve reported on Friday that foreign central banks have been selling US Treasuries but buying agency debt. Overall holdings of Treasury and agency debt kept for overseas central banks declined by US$1.947 billion to US$1.319 trillion in the week ended 24 November. This breaks down to a net sale of $6.336 billion in Treasuries -- bringing their holdings down to $1.061 trillion -- and a net purchase of $4.389 billion in agency securities.

The overall decline in foreign central bank holding of US debt confirms the fears of many analysts that the former are retreating from US financial assets, which will put downward pressure on the US dollar.

While the weakening US dollar largely takes place in the foreign exchange market, there are implications for stocks. I discuss the outlook for stocks in the context of a slowing world economy and a falling US currency in "Slowing world economy poses risk to stocks".

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