Foreign Demand For Treasury Debt Surges
October 17 2019 - 1:40PM
Dow Jones News
By Daniel Kruger
Foreign holdings of U.S. Treasury debt jumped in August while
concerns about global economic growth intensified and the amount of
negative-yielding debt around the world rose.
Overseas investors held a record $6.86 trillion of U.S.
government debt at the end of that month, a 3.4% increase from the
month before, according to the most recent Treasury Department
data, disclosed late Wednesday. Foreign holdings had their largest
percentage increase in more than nine years, according to the
data.
The surge in purchases occurred as investors became increasingly
concerned about intensifying trade tensions between the U.S. and
China and after the Federal Reserve cut interest rates for the
first time since the financial crisis.
Yields on Treasury debt have remained significantly higher in
the U.S. than in Germany and other large European economies, where
government bond yields have fallen below zero to record lows. The
Fed raised interest rates nine times in recent years before cutting
them twice this year. The ECB has held interest rates below zero
since 2014.
Foreign investment in U.S. debt is growing at a much faster pace
this year than last, even though it has remained very expensive for
investors with other currencies to hedge the risk that the dollar
could lose value. The change reflects a shift in investor sentiment
due to the persistent strength of the dollar versus the euro, yen
and other major currencies.
That strength has given investors confidence to hold Treasurys
in dollars without using hedges to protect against a decline in the
U.S. currency, analysts said.
"There's definitely a willingness to take the currency risk
because the cost to hedge it is so acute," said Rick Rieder, the
global chief investment officer for fixed-income at BlackRock
Inc.
Treasurys and other U.S. bonds are attractive overseas because
of a global shortage of "quality assets with some yield to them,"
Mr. Rieder said.
U.S. government bond prices edged higher Thursday amid optimism
about a proposed Brexit deal. The benchmark 10-year Treasury yield
was recently at 1.755%, according to Tradeweb, compared with 1.750%
Wednesday. The yield had climbed as high as 1.797%. Bond yields
rise when their prices fall.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
October 17, 2019 13:25 ET (17:25 GMT)
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