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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