This week, the latest Treasury data showed a slight decline in the amount of Treasuries held by foreign investors. However, they still account for a significant proportion of US assets. At a time when the Trump administration is considering new tax measures, it would be in its best interests not to undermine their confidence.
It's a question everyone has been asking since Donald Trump imposed reciprocal tariffs in early April: will foreign investors sell their Treasuries?
Although the US president has since backtracked, suspending these tariffs for 90 days, his policy may be seen as undermining investor confidence in US assets.
Fewer bonds, more stocks
To measure this in concrete terms, we need to look at US Treasury data. Although this data is published with a certain time lag, it shows how much US debt is held by each country.
In April, we saw a very slight decline in international investors' holdings of Treasury bonds (36.1 billion out of a total of 9 trillion dollars).
In detail, China reduced its holdings to $757bn, their lowest level since 2009. This is a continuation of a trend that began in 2013. However, Belgian holdings are on the up. Belgium is often seen as a proxy for China, which has transferred some of its holdings in Treasury bonds to Euroclear accounts (based in Brussels).
But to truly gauge the weight of international investors in the US debt market, it is the proportion rather than the absolute amount that needs to be taken into account.
Today, around one-third of public debt is held by foreign investors. Ten years ago, it was nearly 50%. This decline is mainly due to the Fed's quantitative easing (QE) programs, which will continue until 2022co, mainly consisting of purchasing Treasuries.
The weight of international investors has therefore declined considerably in recent years, although remains significant.
On the equity side, it is a reverse trend. Foreign investors hold an increasing share of US listed companies. Foreign investors now hold 18% of US equities, a record high.
Sources: Federal Reserve, Macrobond, Apollo Chief Economist
Avoiding taxes
The conclusion is that foreign investors hold a significant share of US assets, and that it is in the US interest not to excessively undermine their perception of the investment framework.
This is why one provision of Donald Trump's tax bill (One Big Beautiful Bill) is causing serious consternation, even amongst Republican lawmakers. In the version of the bill passed by the House of Representatives, Section 899 introduces a progressive tax, which can rise to 20%, on passive income (interest, dividends, royalties) received by foreign investors.
The text is still being debated in the Senate and will have to go back to the House for a final vote. All this must be done by July 4, the deadline set by Donald Trump.
Between now and then, we will see whether Donald Trump sticks to this measure or, as is often the case, backtracks. This is the famous TACO trade (Trump Always Chickens Out). In any case, this is the bet that the markets are making (particularly on customs duties), which explains the rebound in indices since mid-April. The S&P 500 is even up 2% in 2025.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.