For all the dire warnings over China’s
retreat from U.S. government debt, there is one simple fact that is
being overlooked:
American demand is as robust as ever.
The buying has been crucial in keeping a lid on America’s financing costs as China -- the largest foreign creditor with about $1.4 trillion of U.S. government debt -- pares its stake for the first time since at least 2001.
Yields on benchmark Treasuries have surprised almost everyone by falling this year, dipping below 2 percent last week. The 10-year note yield was little changed at 2.04 percent at 10:50 a.m. in London on Monday.
It’s not the scenario that doomsayers predicted would leave the U.S. vulnerable to China’s whims.
But the fact that Americans are pouring into Treasuries may point to a deeper concern: the world’s largest economy, plagued by lackluster wage growth and almost no inflation, just isn’t strong enough for the Federal Reserve to raise interest rates.
“As you develop a more pessimistic view on global growth,
inflation, and rates, asset managers are going to buy Treasuries in
that environment,” said Brandon Swensen, the co-head of U.S.
fixed-income at RBC Global Asset Management, which oversees $35
billion. Read more:
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