The People's Bank of China has bought Treasuries with the dollars it amassed as it has tried to keep the yuan from rising, Morici said. Dollar purchases by other Asian countries as they sell their currencies to stay competitive with Chinese exporters have helped US debt, keeping bond yields low and making it more difficult for the Fed to curb mortgage lending and consumer spending with interest-rate increases, Morici said.

``China is the largest part of the problem,'' Morici said in a phone interview on June 30 from College Park, Maryland, where the university is based. ``Because China is buying so much foreign exchange and so many dollars, other countries can't'' allow their currencies to strengthen ``unless they lose their export market to China.''

Almost 60 percent of the US$1.9 trillion of US Treasuries held outside the United States have been bought by China, Japan, Taiwan, South Korea, Hong Kong and Singapore, according to US government figures at the end of April. The purchases have driven Treasury yields lower, even though the Fed is raising interest rates.

``At some point, it ceases to be sustainable,'' said Morici, a former chief economist at the US International Trade Commission.

The Fed on June 30 raised its rate for overnight loans between banks for a ninth time to 3.25 percent and restated a plan to make further increases at a ``measured'' pace.

Greenspan first called the situation a ``conundrum'' on February 16 during an address to Congress. On June 6, in a speech to the International Monetary Conference in Beijing via satellite, he said the situation is ``without recent precedent.'' China's holdings of Treasuries at the end of April were US$230 billion, up from US$163 billion a year ago, according to US government data.

Yields on benchmark US 10-year notes fell from 4.69 percent in the past year even as the Fed has boosted rates by 2.25 percentage points during the same period. Ten-year note yields rose 1 basis point to 4.05 percent in late afternoon trading Tuesday in Tokyo. Yields touched 3.8 percent on June 3, the lowest since March 2004. ``Central banks of Asia have bought Treasuries, and that's the main reason yields are lower than expected,'' said Hiroyuki Yamada at Daiwa SB Investments, a unit of Japan's second-largest broker.

Daiwa SB Investments forecasts 10-year yields to be at 4.5 percent by year-end. Yields would be higher than this without purchases of Treasuries by Asian central banks, Yamada said.

``It's not a good time to buy'' Treasuries with longer maturities, Morici said. ``I'm 56, and I need some money for my son for college in five, six or seven years. And I'm not buying five, six or seven-year securities.''

Adjusting the yuan's peg would help reduce the dollars China needs to buy and keep the mainland from increasing its Treasuries purchases, said Morici.

The yuan is allowed to fluctuate 0.3 percent above or below its pegged level of 8.3 percent to the dollar, which means that the central government can buy or sell the US currency to maintain it at its pegged level. China's currency would rise to 7.867 against the dollar in a year if freely traded, forward contracts showed, a gain of 5 percent.

A yuan revaluation is when China tries ``to find the value for the currency where they don't have to intervene'' to buy or sell it, Morici said.

``China may make a small move in the next six months, but I don't think they'll make a move large enough to make a difference.''

Should the central government not make a large enough adjustment to its currency peg, ``they'll continue to have to buy more and more US dollars'' and increase their demand for Treasuries.

Japan's holdings of US securities rose 70 percent to US$685 billion in April from the same month in 2003, according to the Treasury Department.

The Treasuries Taiwan owned almost doubled to US$70.6 billion in the same period, those held by South Korea increased 51 percent to US$56 billion and Singapore's holdings rose 55 percent to US$30 billion.