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
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.