U.S. debt ain’t what it used to be in global financial markets. It appears that foreign investors are not interested in Treasuries like they were years ago. And that could be bad news for the Trump administration, especially as it slashes taxes and refuses to cut spending.
According to the latest Treasury Department data, the biggest foreign holders of debt – China and Japan – have reduced their holdings: $130 billion and $2 billion, respectively, since August 2018. But other overseas buyers are not participating in auction sales.
The data further revealed that some auctions over the last two months have seen their weakest participation rates in a decade. However, auction sales are going up fast as bond issuances will be a record high $83 billion.
From Bloomberg:
Foreign investors – both private funds and official entities such as central banks – have been lynchpin participants in the $15.3 trillion U.S. Treasury market for years. And while overall foreign holdings have remained steady at roughly $6.2 trillion, their participation has not grown materially in several years.
The Treasury market, meanwhile, has mushroomed in size, leaving foreigners to account for just 40.5 percent of the market as of September versus nearly 50 percent in January 2013.
A sustained slackening in foreign demand for Treasuries could hurt the U.S. economy. Lower demand means the government must increase the interest it pays out to attract buyers. Those higher federal borrowing costs not only add to the U.S. budget deficit, they also tend to push lending rates higher for consumers and corporations, which could knock the second-longest U.S. economic expansion off track.
Unfortunately for President Donald Trump, there is no Art of the Deal for America’s putrid finances.
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