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Foreign Investors Have Lost Confidence In The U.S. Government

Mar. 01, 2018 12:08 PM ET10 Comments
John M. Mason profile picture
John M. Mason


It is reported in the Wall Street Journal that foreign investors have moved on from investing in the debt of the United States government.

Jon Sindreu writes, “The European Central Bank estimates that since 2015, eurozone investors have accounted for more than half of foreign purchases of U. S. debt securities.”

“But in 2017, eurozone investors were consistent net sellers of Treasurys, according to official U. S. data.”

Mr. Sindreu argues that a big reason for this change in heart has been that hedging opportunities using derivatives have declined to the point where this strategy no longer is as attractive as it once was. And, he explains several techniques for hedging positions.

Overall, however, these explanations and some others relating to interest rate expectations and increasing term premiums seem to be stretching for an explanation, something that Mr. Sindreu seems to agree with since “Fed data” suggests that these reasons don’t explain a lot of the change in behavior.

In late 2016 and early 2017, I suggested another reason for the movement of funds out of the U. S. Treasury market. This discussion is captured in my post of February 14, 2017.

In an even earlier post I argued that a substantial amount of foreign monies had moved into the United States in the 2011-2013 period, especially from Europe. These funds were looked at as “risk averse” monies that were seeking a “safe haven” and the “safest” of the “havens” at that time happened to be the United States.

In fact, so much “risk averse” funds entered the United States that the yield on U. S. Treasury Inflation Protected Securities (TIPS) dropped into negative territory and remained there for extended amounts of time while Europe and other areas attempted to get their economic houses back in order.

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John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

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