Saudi Arabia's Secret Holdings of U.S. Debt Are Suddenly a Big Deal

In the past year alone, Saudi Arabia burned through about $100 billion of foreign-exchange reserves to plug its biggest budget shortfall in a quarter-century. For the first time, it's also considering selling a piece of its crown jewel -- state oil company Saudi Aramco. The signs of strain are prompting concern over Saudi Arabia's outsize position in the world's largest and most important bond market.

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The special arrangement, born out of the 1973 oil shock following the Arab embargo, is just one small concession among many that successive U.S. administrations have made over the years to maintain America's strategic relationship with the Saudi royal family -- and its access to the kingdom's deep reserves of oil.

Because its holdings are believed to be the largest, Saudi Arabia's moves have drawn scrutiny, particularly as other central banks in emerging markets sell Treasuries to raise cash in defense of their currencies... Those sales have had a small, but visible impact on America's funding costs. According to Deutsche Bank AG, selling by foreign central banks since March has added 0.3 percentage point to yields on 10-year Treasuries, which ended Thursday at 2.03 percent.