Feb 22, 2019

Americans are loading up on U.S. debt

Dion Rabouin, author of Markets

Foreigners sold $77.35 billion in U.S. Treasury debt in December, the most recent month for which data is available. That's the largest outflow since the U.S. government started recording Treasury debt transactions in January 1978, data shows.

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Reproduced from Deutsche Bank; Chart: Axios Visuals

Why it matters: U.S. demand for Treasuries has remained incredibly strong since late last year and in fact has increased as yields have fallen, meaning investors are being paid less to hold the debt.

Background: Since 2000, foreign buyers had been the main growing source of Treasury sales. That trend has reversed and American buyers, including banks, pension funds and households, have more than picked up the slack.

What to watch: That's unusual and the fact that yields remain near these particularly low levels (2.69% on the 10-year at press time) likely suggests investors are continuing to position for a downturn, despite the stock market's reversal.

  • Deutsche Bank Chief International Economist Torsten Slok notes that foreigners sold a total of $91 billion of U.S. stocks and bonds in December, with around 85% of that being U.S. government debt.

Despite this significant upward pressure on Treasury yields during the stock market rout (because selling leads to lower prices, meaning yields should rise), benchmark 10-year yields fell from 3.20% in November to 2.60% in December.

  • "This reveals how strong the domestic bid is from pension funds and banks for U.S. Treasuries at the moment," Slok said.

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