Why Foreign Investors are Fleeing US Securities, Turning to Gold, Chinese Bonds

Thursday, August 9, 2018
By Paul Martin


Foreign investors are getting rid of US bonds in 2018 while seeking safe havens amid the instability driven by the Trump administration’s sanctions against Iran and Russia and a full-fledged trade war with China.

Washington is struggling to cope with the non-stop growth in national debt, which hit the $21 trillion mark in March 2018. To tackle the problem, the US Treasury increased its quarterly refunding by $30 billion and auctioned a record $26 billion of 10-year notes on August 8, after its package of 3-year bonds worth $34 billion had seen a somewhat modest demand from foreign investors.

The US’ trade frictions with China have seemingly limited the foreign investors’ appetite for American Treasuries and prompted them to seek safer havens amid the gathering storm.

Moreover, some countries have started dumping US debt since the beginning of 2018. For instance, Russian ownership of American bonds has declined 84 percent, decreasing from $96.1 billion in March to just $14.9 billion this May.

For its part, Turkey has slashed its US Treasuries holdings by half: In May they amounted to $32.6 billion, while in 2017 they stood at the $62 billion mark.
Meanwhile, China’s holdings of US bonds, bills and notes plummeted by $5.8 billion to $1.18 trillion in April; similarly, Japan, the second biggest foreign holder of American debt after China, decreased its holdings by $12.3 billion to $1.03 trillion, the lowest since 2011, according to Bloomberg. Mexico, India and Taiwan followed suit. As a result, in April foreign ownership of American Treasuries fell to $6.17 trillion.

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