Foreign Grip Loosens on U.S. Treasuries

U.S. investors take up the slack as China and Japan slow purchases of Treasury bonds.

Overseas creditors such as China and Japan enabled the U.S. to spend its way out of the recession as they gobbled up 80 percent of the nation’s Treasuries. Now, their holdings are dropping toward the lowest level in a decade, while homegrown investors have picked up the slack.

Excluding Treasuries held by the Federal Reserve, U.S. investors such as mutual funds and pensions have boosted their stakes in the nation’s long-term interest-bearing debt securities since the credit crisis to 33 percent, according to the latest government data. With foreigners buying the fewest Treasuries last year since 2006, domestic buyers have added $33 billion of bonds, according to JPMorgan Chase & Co.

In the past two years, Japan has added fewer Treasuries on a percentage basis than at any time since 2007.

At the same time, U.S. debt investors are gravitating toward longer-term Treasuries. The shift in favor of Treasuries among U.S. bond buyers has occurred this year as yields on the highest-rated company bonds have fallen to a level that doesn’t justify the additional risk, said Thomas Graff, who manages $3.6 billion of fixed-income assets at Brown Advisory Inc.

After the financial crisis, the U.S. budget deficit surpassed $1 trillion for four straight years as the government boosted spending to bail out the nation’s banks and revive the economy hobbled by its worst recession in seven decades.

The nation’s debt burden soared, and China surpassed Japan to become the largest foreign creditor to the U.S. as their combined holdings surged to $2.5 trillion.

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