Foreign Buying of US Debt Slows to Lowest Level Since 2006

The bad news? Foreign purchases of US debt are noticeably slowing.

The good news? US investors are stepping up and picking up the slack.

According to Bloomberg.com, foreign buyers of US debt increased their holdings by 4% in 2013, which was the slowest such increase since 2006.

Of the $8.1 trillion in US debt not held by the Federal Reserve, 67% was held by foreign buyers. According to Bloomberg.com, this is getting close to the lowest such number posted since the government started releasing this data back in 2000.

--

China has been a veracious buyer of US debt over the past decade or so, but their appetite has waned over the past year or two.

According to the most recently released numbers from the Treasury, China's US debt holdings are up just 3.97% over the past year. As of December/2013, China's US debt holdings sat at around $1.27 trillion.

A number of issues, including the ongoing battle over the US debt ceiling, have caused a number of nations, including China and Japan, to scrutinize their decision to hold mountains of US debt. Japanese Finance Minister Taro Aso has specifically stated his country's concern over a possible US debt default.

--

While the appetite from foreign investors for US debt is starting to slow, US investors have been more than willing to pick up the slack.

According to Bloomberg, US investors such as mutual funds and pension funds have stepped into the market and added considerably to their US debt holdings. This is obviously of extreme importance for the nation, as the United States is still posting deficits in excess of $500 billion.

--

According to recent projections from the CBO, the United States is going to see their annual deficits start to tick back up to around the $1 trillion mark over the coming years.

The big question is - where will the demand for US debt come from if foreign investors continue to scale back on their purchases?

Source: Bloomberg.com - Foreign Grip on Treasuries Loosens as U.S. Investors Buy

Filed under: General Knowledge