April 5, 2018 / 10:09 PM / 16 days ago

UPDATE 1-Foreign U.S. bond holdings at Fed fall as trade rhetoric heats up

(Adds details of Fed data, background)

NEW YORK, April 5 (Reuters) - Foreign central banks’ holdings of U.S. Treasuries at the Federal Reserve fell for a third straight week but remained close to a record high posted last month, Fed data released on Thursday showed.

The decline comes at a time of speculation as to whether China, the largest foreign holder of U.S. government debt, and other U.S. trading partners might retaliate against the tariffs and trade restrictions imposed by President Donald Trump to counter what he calls unfair trade practices.

Dumping of Treasuries by other nations could send U.S. mortgage rates and government borrowing costs soaring, but most analysts said this was unlikely for now because it would hammer the value of these countries’ currency reserves.

Asked by a reporter on Wednesday if China would reduce its U.S. Treasury holdings in retaliation, Vice Finance Minister Zhu Guangyao reiterated China’s long-standing policy regarding its foreign exchange reserves, saying it was a responsible investor and that it would safeguard their value.

The U.S. central bank’s custody holdings of U.S. government debt securities for overseas central banks totaled $3.088 trillion on Wednesday, down from $3.090 trillion the prior week.

Foreign official ownership of Treasuries at the Fed reached $3.109 trillion on March 14, which was the most on record, according to Fed data.

The Fed’s custody holding data is only one gauge of overseas central banks’ stakes in Treasuries. Foreign government institutions also keep their U.S. bonds in accounts outside the Fed.

Custody data do not provide a breakdown of Treasury holdings by country. (Reporting by Richard Leong; editing by Chris Reese)

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