November 19

Foreign buyers moving away from US debt – WSJ

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Share of US Treasuries owned by overseas holders has shrunk significantly in ten years, the newspaper reports

Demand for US outstanding government debt from overseas buyers has significantly reduced with share of Treasury bonds hold by foreign private investors and central banks dropping to around 30% from some 43% ten years ago, the Wall Street Journal reported this week, citing data from the Securities Industry and Financial Markets Association.

At the same time, supply has become more and more inexhaustible, the outlet notes, citing a net $2 trillion in new debt issued by the US Treasury this year. This amount marked an all-time high, excluding the pandemic-related borrowing spree scored back in 2020.

“US issuance is way up, and foreign demand hasn’t gone up,” Brad Setser, senior fellow at the Council on Foreign Relations, told the journal. “And in some key categories–notably Japan and China–they don’t seem likely to be net buyers, going forward.”

Demand for the US obligations from foreign investors and central banks, voracious buyers of US debt in the 2000s and early 2010s, is expected to be “more limited,” according to the Treasury Borrowing Advisory Committee, a group of Wall Street executives that advise the US Treasury.

In response to sluggish demand, Treasury has recently shifted to issuing shorter-term bonds that are in higher demand, in an attempt to restore market stability. The yield on the US ten-year note that shot above 5% last month is now at around 4.4%.

Data released by the US Treasury earlier this week shows that foreign investors sold a net $2.4 billion in long-term Treasury notes in September, bringing their holdings to $6.5 trillion.

Meanwhile, statistics from the Council on Foreign Relations, which tracks the investments on a rolling 12-month basis, demonstrates that the pace of foreign buying has eased in recent months to around $300 billion, from levels above $400 billion for much of 2022.

A strong dollar has reportedly forced central banks to stop stockpiling US Treasuries or even to sell them down. The regulators, including those in China and Japan, use the dollars they get from selling US debt to boost the value of their own currencies. Investors also remain concerned about the US government’s widening deficits.

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