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The four-year rally of US Treasury bills could be masking a serious problem: Foreign investors are ditching the dollar.

As the US currency slumped to a fifteen year low on Friday, central banks unloaded US government securities, fearful that T-bills would quickly start to realise losses for their portfolios.

According to Bloomberg, holdings of US government bonds by foreign governments and central banks fell by 3.8 per cent through August - the biggest decline since 1992. China, Japan and Taiwan all sold. Against Merrill Lynch’s main index of US government securities, investors in Japan lost 3.1 per cent after currency changes were factored into account. The dollar has fallen 8 per cent against the yen since July.

Overseas investors hold half of America’s $4,400bn of marketable government debt, up from a third in 2001 according to the US Treasury department.

Further foreign divestment in the US economy could cause a serious headache for the Fed. A decline in oversees treasury holdings would scotch the intended effects a cut in rates might have. A 2006 study by Federal Reserve economists concluded that foreign investment in the US economy has been a liquidity prop keeping long-term interest rates 90 basis points below where they should be.

The sharp decline in overseas holdings has also been underscored by a longer-time movement away from US government debt. Asian governments in particular have been keen to diversify holdings and chase higher returns.