The U.S. Treasury on Wednesday saw the weakest demand for its benchmark 10-year note in a decade, illustrating the diminishing appetite among some investors to accept current yields.
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Foreign investors, led by China and Japan, have accounted for a smaller and smaller share of American government debt outstanding. And the Federal Reserve, for now, continues to trim its holdings. That’s put the onus on domestic U.S. investors, at a time when 10-year yields are little more than three-month ones.
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While there was some speculation that rising U.S.-China trade tensions could see Chinese buyers holding off at the auction, there was no obvious sign of that. Indirect bidders, the category that includes foreign and international monetary authorities placing bids through the New York Fed, took 53.3% of the sale, the least since April 2018. But direct bidders, “widely understood to be mostly driven by China,” according to Thomas Simons, an economist at Jefferies, took a near-average share.
Even so, the broader share of foreign ownership of Treasuries has steadily dropped over time, to little more than one-third as of the end of 2018, according to data compiled by Bloomberg. A decade before, it was more than 44 percent. As a result, last year saw U.S. funds “absorbing the largest amount of domestic securities on record,” Guillermo Tolosa, an economic adviser to Oxford Economics Ltd. who analyzes global capital flows, wrote in a May 2 note.
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