China has now topped Japan as the No. 1 holder of U.S. government debt.

China increased its holdings in U.S. Treasury investments by $43.6 billion in September to $585 billion.

Japan, by contrast, cut holdings of U.S. debt by $12.8 billion, falling to $573.2 billion.

Despite very low Treasury rates and a hammering in the U.S. stock markets, net foreign purchases of long-term U.S. securities, including stocks and bonds, totaled $66.2 billion in September, up from $21 billion in August and $18.4 billion in July, according to government data.

China mostly bought T-bills in three- and six-month issues. The country bought $39.4 billion more in T-bills in the month.

Investors seek the relative safety of U.S. debt, but the lack of corporate debt to buy has played a role, reports Reuters, pushing down yields on government issues.

Between $1 trillion and $2 trillion in new Treasuries will add to the existing $4.9 trillion U.S. government debt market in the next year, analysts tell the news service.

The 10-year Treasury yield will fall to 2 percent from 3.58 percent now as the economy contracts, David Levy, chairman of The Jerome Levy Forecasting Center in Mount Kisco, New York, told Reuters.