This week the Wall Street Journal has reported that overseas buyers have significantly reduced their demand for US outstanding government debt, as the share of treasury bonds which foreign private investors held fell to about 30% from about 43% ten years ago according to data from the Securities Industry and Financial Markets Association.
The outlet noted that as the supply has continued to grow to inexhaustible levels with a net of $2 trillion of new debt issued by the US Treasury just this year, the amount has being produced each year reached an all-time high, if you do not examine the borrowing spree we saw during the pandemic in 2020.
Brad Setser, senior fellow at the Council on Foreign Relations, said in an interview with the journal, “US issuance is way up, and foreign demand hasn’t gone up. And in some key categories–notably Japan and China–they don’t seem likely to be net buyers, going forward.”
According to the Treasury Borrowing Advisory Committee, a group of Wall Street executives that advise the US Treasury, it is expected that foreign investors and central banks, which were previously voracious buyers of US government debt in the previous two decades, will be “more limited” in their demand going forward.
Due to the sluggish demand, Treasury has increased its offerings of shorter-term bonds which are more in demand, as it seeks to restore some form of market stability. After shooting over 5% last month, the yield on the US ten-year note now sits at about 4.4%.
According to US Treasury data released earlier this week, foreign investors sold a net $2.4 billion worth of long-term Treasury notes in September, bringing their holdings to $6.5 trillion.
At the same time, the Council on Foreign Relations, which monitors the investments over a rolling 12-month basis released statistics which showed that foreign purchases of US government debt have been slowing in recent months, from levels over $400 billion throughout much of 2022, down to about $300 million in recent months.
As the dollar has strengthened, central banks have reportedly been forced to cease stockpiling US Treasuries, and even to sell them off. As they are sold off, regulators in nations such as China and Japan will use the dollars they get to strengthen their own currencies.
In addition, rank and file investors are growing increasingly concerned with the widening deficits being produced by the US government.