U.S. investors are buying Treasuries at a faster pace than foreigners for the first time since 2010, aiding the government in its efforts to borrow as total public debt outstanding rises above $16 trillion.
Government debt securities held by domestic buyers, excluding the Federal Reserve, rose 10.7 percent in the first seven months of this year to $3.61 trillion, compared with a 6.9 percent increase for countries from China to Germany, according to the latest data available from the Treasury Department and compiled by Bloomberg. Foreign purchases grew 13 percent last year, while U.S. holdings fell 4.6 percent.
Record-low yields are proving no deterrent to U.S. buyers concerned that unprecedented stimulus by the Fed and Chairman Ben S. Bernanke may neither stimulate the economy nor bring down a jobless rate that has exceeded 8 percent since February 2009. The government is dependent on demand for its debt as it seeks to finance a budget deficit poised to exceed $1 trillion for the fourth straight year.
Bonds have “stopped being a total-return market,” Tom Graff, who manages $3.6 billion of fixed-income assets at Brown Advisory Inc. in Baltimore, said Sept. 7 in a telephone interview. “The high degree of uncertainty has caused excess cash to build up among household assets.” As long as individuals are seeking safety rather than being “return- oriented, then no particular yield is too low,” he said.
While investors outside the U.S. own 50.4 percent of outstanding Treasuries, up from 49 percent in May 2011, their share has declined from 55.7 percent in 2008. China, the biggest foreign owner, has cut its holdings to $1.15 trillion from a peak of $1.31 trillion in July 2011.
Foreign holdings of U.S. debt have been cited as a sign of vulnerability by Republicans in this year’s election campaign. Borrowing costs for European nations from Greece to Portugal and Spain surged as nondomestic investors pulled back from their debt markets as deficits soared.
“Does the America we want borrow a trillion dollars from China? No,” Mitt Romney said Aug. 30 in accepting the presidential nomination at the Republican National Convention in Tampa, Florida.
The amount of total U.S. public debt outstanding has risen from less than $9 trillion in 2007 as the government borrows to pay for spending programs designed to help the economy recover from the worst financial crisis since the Great Depression.