Central banks unload US bonds as funds buy

NEW YORK - International central banks are selling the most US Treasuries since the credit crisis began just as institutional investors load up on US government bonds.

The Federal Reserve said its holdings of US government debt on behalf of central bankers and institutional investors outside the country has plunged $76.5 billion in the last seven weeks, the most since August 2007. At the same time, bond mutual funds are adding Treasuries, banks have increased their holdings 45 percent in the past five years and the Federal Reserve has added $656 billion to its balance sheet this year.

Rather than a referendum on the US' $1.3 trillion budget deficit and rising debt burden, sales by foreign policymakers may have more to do with supporting their currencies. With economists predicting inflation slowing to 2.1 percent in 2012 from 3.1 percent this year and the Federal Reserve's commitment to keeping interest rates near zero, investors say the demand that pushed government bond yields to record lows last month will be sustained.