Thursday 23 November 2017

US's biggest creditors dump treasuries in warning to Trump

US President Donald Trump. Photo: AP
US President Donald Trump. Photo: AP

Brian Chappatta

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 is 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 $13.9trn (€13.1trn) US Treasury market right now.

Whether it is 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. 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. "Treasury yields may rise rapidly again, which will continue to discourage them from buying aggressively."

Nobody is saying that other countries will abandon Treasuries altogether. After all, they still hold $5.94trn, or roughly 43pc of the US government debt market (though that's down from 56pc in 2008.) A significant drawdown can harm major holders like Japan and China as much as it does the US. (Bloomberg)

Irish Independent

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