Are foreign investors losing interest in US Treasury bonds?
China and Japan were among the nations that reduced US debt holdings in April.
Just as the US government has decided it wants to borrow more than ever, foreign investors have decided they’re not so eager to lend.
In April, foreign investors pumped only $41.9 billion into US Treasury bonds, down from about $55 billion in March.
This doesn't necessarily portend a run on the dollar or a new crisis for the US economy. But it may help explain why the cost of borrowing money has been going up for the US Treasury – costs that will be shouldered by taxpayers for years to come.
Some of the most prominent nations reduced their Treasury holdings in April, although the total of all foreign holdings of US debt dipped only slightly. China pared its stake by $4.4 billion, to $763.5 billion total. Japan, which ranks second to China in Treasury holdings, also posted a small decrease. So did Russia, Brazil, and oil exporting nations.
Weak foreign demand comes as the Treasury would like foreign investors to buy more of its bonds, not less. The government is issuing debt at a prodigious pace, and counting on foreign investors to buy much of it. Economists at Goldman Sachs project that new borrowing by the government will total $1.7 trillion in the final half of the 2009 fiscal year, followed by $1.4 trillion in 2010 and $1 trillion in 2011.