Who loves us, baby? China still does.

Who loves ya, baby?

The United States may be hurtling towards a fiscal cliff at the end of the year. But if the U.S. is Thelma then China is Louise. Despite continued fears about another debt ceiling debacle at the end of this year, China is buying U.S. Treasury debt like it's going out of style ... or like it's Facebook stock.

The Treasury Department released its latest figures on foreign holdings of U.S. debt Tuesday morning. There is a lag -- the most recent numbers are from March. But China added to its massive position in Treasury bonds. It now holds $1.169 trillion in U.S. bonds, up $14 billion from February.  China had been net sellers of debt for five straight months last fall after Standard & Poor's stripped the U.S. of its AAA credit rating. But the increase in March is the second time this year China has bought more Treasuries.

China seems to realize that even though politicians on Capitol Hill are unlikely to take a long enough break from campaigning to actually do anything important until after the election, the fiscal situation in the U.S. is still far less dire than Europe's. At this point, I'm not sure there are enough lollipops in the world for even the late Greek-American acting icon Telly Savalas to pull a Kojak and love Greece and the rest of the eurozone, baby.

Sure. it must be painful for China to own so much Treasury debt with long-term yields once again approaching all-time lows. But the U.S. is still the safest of the safe havens. The euro is starting to show some cracks, having broken below the key $1.30 level. Gold has lost its luster. Unless China actually does want to invest in Facebook, Treasuries seem their best bet -- even with the 10-year yielding a puny 1.78%.

Still, our second largest foreign creditor, Japan, scaled back its Treasury holdings a bit. Japan was a net seller in March. But that is only the second time since last July that Japan has sold Treasury debt. Japan owns $1.083 trillion in U.S. debt, up from $885 billion in July. So if the U.S. is Thelma and China is Louise, I guess that makes Japan the poor truck driver that got blown up at the end of the movie.

Posted in: bonds, China, debt, fiscal cliff

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