Home Forex Will the selling of US bonds by foreign holders increase yields?

Will the selling of US bonds by foreign holders increase yields?

by SuperiorInvest

Several factors have conspired in recent weeks to drive US Treasury rates sharply higher. These include the Federal Reserve’s program to reduce Treasury holdings by allowing them to mature; growing fiscal deficits in Washington and a Congress missing in action; the downgrade of the US Treasury debt rating by Fitch Investor Services; and high-profile purchases and sales by foreign owners of Treasury debt, writes Juan EadePresident of Argos Research.

Total public debt owed by the US federal government stood at $32.3 trillion at the end of 2Q23. Outside the United States, the two largest holders of American public debt are Japan, which owns 3.5%, and China, which owns 2.5%.

Other nations among the top 10 holders own 9% of the debt, so the top 10 holders collectively own about 15%. The grand total of US debt held by foreign holders is $7.7 trillion, or about 24% of the total.

Foreign holders of US debt

Foreign holders of US debt

While the absolute level of holdings has increased by approximately 3% over the past year, we have seen pronounced changes among the largest holders. Japanese bondholders have historically been long-dated, drawn to Treasuries, while yields on their local sovereign bonds have been near zero for years.

However, a recent rate hike in Japan has led to the repatriation of approximately $80 billion of Treasury bonds into local sovereign securities over the past year. China has also been selling, partly for political reasons. China’s current Treasury holdings are down about $135 billion from last year.

But while some nations have reduced exposure, others have increased it. Canada has increased its holdings by 17% and the UK’s increased by 8% last year. We think this kind of global demand for US Treasuries should help keep long-term rates in check in 2024.

This content was originally published on MoneyShow

Source Link

Related Posts

%d bloggers like this: