Treasuries not so Treasured – ANZ

ANZ Morning Focus New Zealand edition talks about the impact of the reduced foreign demand for the US treasuries on the Trump’s spending plan and US debt ceiling.

Key points

Foreigners hold about 43% of the US government debt market (down from 56% in 2008). Japan, the largest holder, reduced its holdings in December by the most in almost four years. China has been selling foreign reserves for months to shore up its currency, with its Treasury holdings at a 7-year low. Fully currency-hedged European investors were hit with losses last month.

Thus far, domestic demand has been able to meet the shortfall, with 10-year yields having retreated from their mid-December highs of 2.64% to 2.44% today. However, reduced foreign demand, whether it’s due to fear of the Fed or wariness of Trump and his spending plans, will make borrowing more expensive for the US Government, all else equal, and bring budget pressures into focus more rapidly than otherwise. With US sovereign debt nearly 100% of GDP, those pressures have to be addressed sometime.