Trouble Ahead for US Treasury if Foreigners Keep Selling
Foreigners, who have been all too eager to buy U.S. treasury securities in recent years, appear to have taken to the sidelines or worse, according to CreditSights.
The latest Treasury data on foreign purchases and sales of U.S. securities shows that for the first time in November, foreigners were net sellers. They began selling as the credit crisis worsened over the summer, but the selling clearly accelerated near year-end, with net sales of $22.88 billion in November – the biggest net monthly sales in two decades.
The dramatic drop in volume in the latest month does not augur well for a country with the US’s dependence on foreign capital, particularly given the outlook for the budget deficit and the gargantuan financing needs that we are facing in the coming years.
It begs the question: who will buy all of the new Treasury securities about to be issued to cover the deficit?
The bond market appears to be waking up to this new reality, according to government bond strategist David Ader of RBS Greenwich Capital, quoted in the Wall Street Journal this morning. The U.S. has a heavy schedule of Treasury auctions lined up for the next two weeks.
The market’s ability to take on $144 billion worth of Treasury coupons in a scant two-week time frame” will be tested. –David Ader, RBS Greenwich Capital.
CreditSights points out that foreigners also stepped up their selling of U.S. corporate bonds near the end of 2008, leaving the year’s total investment far short of previous years.
For details, see “CreditSights on Foreign Demand.”
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