The U.S. has financed its deficits for many years by selling a lot of bonds to foreign buyers, especially foreign central banks. The Wall Street Journal reports that throughout 2018 the percentage of new debt purchased by foreigners has decreased. That’s likely a reason interest rates have increased significantly since late 2017. The concern, of course, is these buyers will continue to reduce their purchases just as the Treasury is increasing its issuance of debt and the Fed is reducing its purchases of treasury debt. But be careful about overreacting. If you do an Internet search for “foreign buying of us treasuries” you’ll see a number of links to articles over the years expressing concern about then-recent declines in foreign buying of treasury bonds.
Foreigners increased their holdings of Treasurys by $78 billion in the first eight months of 2018. That is just over half of what they bought during the same period last year and accounts for a much smaller share of Treasury issuance, as the government steps up the size of regular bond auctions to fill a growing U.S. budget gap.
Foreign buyers now hold 41% of outstanding Treasury debt, their lowest share in 15 years, down from 50% as recently as 2013, according to U.S. Treasury data.
So far, U.S. yields remain low historically, debt funding remains broadly available and many foreign purchasers retain large stakes. China and Japan still both own more than $1 trillion of U.S. debt, according to the U.S. data, and there are few signs that Treasurys are losing their cache as the world’s most widely traded, extensively held safe securities. Treasury yields serve as a reference rate for mortgages, business loans and other borrowing.