Asia Debt Withdrawal Threatens Higher US Interest Rates

Economists fear that Asian investors, who are the largest foreign owners of US Treasuries, may cut their holdings of US government debt, withdrawing a key source of financing for America's large current account deficit.

The worries have been fuelled by recent sharp falls in the price of US government debt. (EL - as debt and bond price falls the interest rate rises.)

Weakness in the US Treasury market could make Asian investors "less willing" buyers of debt securities, said Marcel Kasumovich, head of G10 foreign exchange strategy at Merrill Lynch.

He said there had already been a "noticeable shift" downwards in the amount of debt issued by mortgage financiers Freddie Mac and Fannie Mae being bought by foreign investors.