Foreign demand for U.S. government debt has been declining in recent years but domestic investors have picked up the slack, The Wall Street Journal’s Daniel Kruger and Kate Davidson reported Wednesday.
The percentage of debt owned by foreign investors peaked at 55 percent in 2008 but has now fallen below 40 percent. China, the largest foreign owner of U.S. debt, has seen its holdings fall from about 14 percent of all outstanding Treasury debt to a little more than 7 percent.
Some deficit hawks worried that bond yields could jump if foreign investors dumped their debt holdings, sharply raising the cost of service the national debt and harming the economy by raising the cost of mortgages and business loans. But domestic investors have bought a larger share of the debt issuance, and interest rates have remained low.
“Domestic institutions and individuals have been filling the void,” Kruger and Davidson said. “U.S. households increased their holdings of Treasury securities from $1.4 trillion in early 2017 to $2.3 trillion at the end of the third quarter of 2018, according to the Federal Reserve. China’s holdings of $1.1 trillion are less than the holdings of U.S. money-market funds and mutual funds combined.”
Although the benchmark 10-year yield remains below 3 percent and demand for government debt is still healthy, some analysts are worried about what will happen over the next decade, as the U.S. borrows an estimated $13 trillion. A special Treasury advisory committee is discussing tools that could boost demand for U.S. debt in the coming years, should investors begin to lose interest.