Foreign investors just can't quit U.S. Treasurys

The U.S. Treasury Department will auction off a wave of government bonds this week: a batch of 10-year bonds on Wednesday, and 30-year bonds on Thursday.

In advance of those auctions, Bloomberg reported the Chinese government has been advising banks to hold off on buying any more U.S. Treasurys — and in some cases, to trim their holdings. Beijing is concerned that holding too many T-notes in a volatile market could expose banks to losses.

Over the past year or so, a lot of foreign investors have either sold or threatened to sell U.S. Treasurys.

“This has been a perennial theme in a period of geopolitical volatility,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

Some European investors said they’d pull away from Treasurys after President Donald Trump threatened to take over Greenland. Many foreign investors sold Treasurys after the President’s Liberation Day tariff announcement.

LeBas said that matters because demand for government bonds affects bond yields.

“So if the United States Treasury sells bonds, and foreigners don’t show up at the auctions to buy bonds, that means that domestic purchasers are probably going to require higher interest rates to choose to buy those bonds,” he said.

In other words, the federal government is going to have to pay more interest on the national debt.

That said, foreign demand for U.S. Treasurys has been holding steady over the last several months.

“It’s not accelerating, but it hasn’t really slowed down either,” said Chris Low, chief economist at FHN Financial.

One reason is tariffs haven’t been as extreme as investors worried they might be, he said. Another is Treasurys are still more attractive than bonds from the rest of the world.

Interest rates in other countries have been rising — in Japan, and the U.K.

“The thing is, when interest rates go up, prices — the price of those bonds, their value — goes down,” Low said.

And that makes U.S. bonds look more attractive, despite all of the ongoing uncertainty in this economy.

“It’s like being the tallest kid in the kindergarten class. Still not very tall, but it looks taller than the rest,” Low said.

Bottom line? The U.S. Treasury market has been stable over the last few months, said Guy LeBas at Janney Montgomery Scott.

“I’m looking at a chart that’s part of my Monday morning meeting packet that charts yields, and Interest rates have barely moved since … August?”

And sometimes a stable market isn’t such a bad thing.