Foreign governments have pulled back their purchases of longer-term U.S. debt as trade tensions escalated around the world.
China remained the largest foreign owner of Treasuries in April even with a slight drop in holdings, as the Asian nation’s appetite for U.S. government debt shows few signs of waning amid growing tensions over trade.
Meanwhile, Russia reportedly cut Treasury holdings in half as foreigners start losing appetite for U.S. debt
Foreign governments have pared back their holdings of U.S. debt, reducing the total by nearly $10 billion in March and April, CNBC reported.
Russia was notable among the group stepping back with a 50 percent cut, CNBC reported.
The U.S. government needs buyers of its debt as the Fed continues to reduce its holdings and the budget deficit is projected to surge in coming years, Bloomberg explained.
One of the most glaring declines has come from Russia, which sliced its holdings of U.S. debt nearly in half from March to April, from $96.1 billion to $48.7 billion. Russia's Treasury ownership peaked at $108.7 billion in May 2017.
In all, foreigners held $6.17 trillion of the total $14.84 trillion of Treasury debt outstanding through April. The national debt including intragovernmental holdings has swelled to over $21 trillion.
China’s holdings of U.S. bonds, bills and notes decreased by $5.8 billion to $1.18 trillion in April, according to Treasury Department data released in Washington on Friday. The second-biggest foreign holder, Japan, saw its Treasuries drop by $12.3 billion to $1.03 trillion, the lowest since 2011. Overall, foreign ownership of Treasuries receded in April, falling to $6.17 trillion.
While investors grew jittery in March that Beijing would scale back purchases of Treasuries to retaliate against the U.S. for new tariffs, China has shown little interest in disrupting financial markets over trade. The Asian nation has instead pledged to impose levies of its own on American goods in response to President Donald Trump’s plan to slap tariffs on at least $50 billion of Chinese imports starting next month.
“So far, we don’t see any evidence that China’s using its Treasuries as part of the trade negotiations,” said Zach Pandl, co-head of global FX strategy at Goldman Sachs. “China continues to be a regular and reliable purchaser of Treasuries when its reserve assets are rising, and that remains the case today.”
Japan’s holdings dropped as expensive hedging costs continue to sour them on U.S. debt. For buyers in Japan who use swaps to protect against currency swings, the yield on 10-year Treasuries is a mere 0.38 percent. That compares with the 2.92 percent yield available to those purchasing U.S. 10-year notes unhedged.
The yuan has depreciated about 1 percent against the dollar over the past month amid a broad decline in emerging-market currencies. The nation’s stockpile of foreign-exchange reserves fell for a second straight month in May, to $3.11 trillion, as a weaker exchange rate impacted the valuation of the dollar-denominated stockpile.
(Newsmax wire services contributed to this report).
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