Foreigners Like U.S. Debt as Much as They Ever Have
The idea that international investors are shying away from Treasuries is a good argument that falls flat in light of a broad array of evidence.
Treasury Secretary Steven Mnuchin is counting on foreigners to buy U.S. debt as the budget deficit expands.
Photographer: Andrew Harrer/Bloomberg
There is no shortage of the threats that could push interest rates even higher from here, from the rapidly expanding U.S. budget deficit to the Federal Reserve’s hawkish leanings to even the European Central Bank’s plan to start tapering its bond purchases by the end of the year. Also, some would argue that the economy is doing well enough to provoke at least a bit more inflation. And then there’s the crowd that says foreigners are shying away from U.S. debt.
The last one is a good argument that falls flat when encountering a broad array of evidence suggesting that foreigners have been buying, are likely to continue to buy, but are being crowded out by other buyers. The upshot is that while $1 trillion budget deficits for the foreseeable future are scary for a variety of sound reasons, the lack of demand, especially on the foreign front, isn’t one of them. That should reassure markets, especially after the U.S. Treasury Department said Monday that government borrowing this year will more than double from 2017 to $1.34 trillion as the Trump administration finances a rising budget deficit.