Several countries drastically reduced their exposure to US government bonds in March. Treasuries worth $256.6 billion were sold, according to data published by the US Treasury.
According to analysts, the outflow was mainly driven by the fact that a number of emerging countries needed the money to support their own currency. The most important sellers were Saudi Arabia, Brazil and India. Saudi Arabia sold the most with $25.3 billion, but still owns $159 billion worth of Treasuries.
More than $6800 billion of Treasuries still remain in the hands of governments, institutions and individuals abroad. The largest non-American holders of the paper are Japan with $1270 billion in government bonds and China with $1080 billion. In March, the two countries sold $3.4 billion and $10.7 billion of the debt securities respectively.
But who is buying up all this debt? The answer is simple: the Federal Reserve. It’s now by far the largest single owner of Treasuries. Since the start of the coronavirus pandemic, it has increased its holdings by 60% to over $4 trillion. Total US government debt amounts to $17 trillion.
Declining attractiveness
The attractiveness of treasuries is declining because the Fed has cut interest rates to zero; the futures market is now even pricing in negative interest rates by December. The Blackrock Investment Institute said last month it is time to sell Treasuries. Controversially, the consultancy branch of the world’s largest asset manager advises the Fed on its quantitative easing policy.