Global Banks Conduct Largest Sale of U.S. Debt Since 1978

Foreign banks have sold U.S. debt at a record pace throughout 2016, with June the third consecutive month for U.S. Treasury bond sales.

“Offshore investors sold $32.9 billion in U.S. Treasuries in June after selling $18.29 billion in May. That followed record outflow in April of $74.6 billion,” Reuters reports. “Foreign official institutions, which include central banks, sold $33.5 billion in U.S. government bonds, while private offshore investors bought $2.4 billion.”

The largest foreign holder of American debt remains China at $1.241 trillion, with Japan holding $1.148 trillion for the number two position.

CNN Money reports that China, Japan, France, Brazil, and Columbia were the countries dumping the most U.S. debt through the first six months of 2016. The Treasury Department confirmed this represents the largest selloff of U.S. debt since at least 1978.

Opinions vary as to why so much debt is being sold and what it might portend for the market. Reuters quotes analyst Kim Rupert of Action Economics suggesting foreign investors are “taking profits on U.S. Treasury positions after strong gains.”

CNN Money suggests some foreign banks are selling U.S. Treasury notes “so they can get cash to help prop up their currencies if they’re losing value.” Also, weakness in the global economy, driven especially by the oil glut and China’s troubles, are slowing the economy worldwide.

The Wall Street Journal suggested in early August that foreign investors are selling debt to buy more profitable private stocks and bonds, in the U.S. and in emerging markets.

CNN notes that while foreign appetite for U.S. debt might have cooled for the time being, domestic investors are buying plenty of it, with demand so high that “the U.S. can afford to pay historically low interest rates,” currently about 1.58 percent.