Cred­i­tors Dump Trea­suries as a Warn­ing to Trump

DARK DAYS In­vestors across the world are pulling back from US debt due to Trump’s pen­chant for sabre rat­tling

The Economic Times - - Finance & Commodities -

New York: In the age of Trump, Amer­ica’s big­gest for­eign cred­i­tors are sud­denly hav­ing sec­ond thoughts about fi­nanc­ing the US govern­ment.

In Japan, the largest holder of Trea­suries, in­vestors culled their stakes in De­cem­ber by the most in al­most four years, the Min­istry of Fi­nance’s most re­cent fig­ures show. What’s strik­ing is the sell­ing has per­sisted at a time when go­ing abroad has rarely been so at­trac­tive. And it’s not just the Ja­panese. Across the world, for­eign­ers are pulling back from US debt like never be­fore. From Tokyo to Beijing and Lon­don, the con­sen­sus is clear: few over­seas in­vestors want to step into the $13.9 tril­lion US Trea­sury mar­ket right now. Whether it’s the prospect of big­ger deficits and more in­fla­tion un­der President Don­ald Trump or higher in­ter­est rates from the Fed­eral Re­serve, the world’s safest debt mar­ket seems less of a sure thing — par­tic­u­larly af­ter the up­swing in yields since Novem­ber.

And then there is Trump’s pen­chant for sabre rat­tling, which has made stay­ing home that much eas­ier. “It may be more dif­fi­cult than usual for Ja­panese to in­vest in Trea­suries and the dol­lar this year be­cause of po­lit­i­cal un­cer­tainty,” said Kenta Inoue, chief strate­gist for over­seas bond in­vest­ments at Mit­subishi UFJ Mor­gan Stan­ley Se­cu­ri­ties in Tokyo. “Trea­sury yields may rise rapidly again in the near fu­ture, which will con­tinue to dis­cour­age them from buy­ing ag­gres­sively.” No­body is say­ing that for­eign­ers will aban­don Trea­suries al­to­gether. Af­ter all, they still hold $5.94 tril­lion, or roughly 43% of the US govern­ment debt mar­ket. (Though that’s down from 56% in 2008.) A sig­nif­i­cant draw­down can harm ma­jor hold­ers like Japan and China as much as it does the US. And, of course, home­grown de­mand has of late been able to ab­sorb the pickup in over­seas sell­ing. Since reach­ing 2.64% in mid-De­cem­ber, yields on bench­mark 10year notes have come back and are es­sen­tially flat this year. They were at 2.43% on Mon­day.

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