While diminished foreign demand for U.S. government debt weighed on the Treasury market, the renewed interest among risk-adverse U.S. investors helped prop up Treasuries and bond-related ETFs.
According to the most recent Treasury data, foreign ownership of U.S. government debt has been falling since a peak of about 55% during the financial crisis in 2008 to below 40% in November for the first time since 2003, the Wall Street Journal reports.
China, the largest foreign creditor to the U.S., held as much as 14% of all outstanding Treasury debt back in 2011, but only currently owns a little more than 7% of U.S. debt.
Some observers have warned that government bond yields could jump if foreigners dumped U.S. debt holdings, which would in turn push up costs of other debt throughout the economy, like mortgages and business loans, hampering U.S. growth.
“The fears of the past were exaggerated,” Tony Rodriguez, who oversees taxable fixed-income investing at Nuveen, told the WSJ, adding that domestic investors could continue to buy a larger share of the government’s debt.
TLT ETF Attracts $2.2B Net Inflows
ETF investors have also exhibited a greater willingness to gain exposure to U.S. debt. For example, the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) was among the most popular ETF plays so far this year, attracting $2.2 billion in net inflows year-to-date, according to XTF data.