Since the beginning of the nineties, the US net international position has been negative. In other words, capital inflows to the US exceed capital outflows to foreign countries. The net contribution of non-residents to the financing of the US economy amounted to over 16,000 billion dollars last June, that is to say 67% of US GDP.
The United States is the country that depends the most on foreign capital. Over the last ten years, the profile of debtors exterior to the US economy has evolved. A major part of capital inflows to the United States was coming from official reserves gathered by foreign central banks in Asia, in particular.
The dollar being an international reserve currency it encouraged these official investors to purchase US Treasury debt securities. Over time, foreign central banks and foreign states have partially walked away from US Treasuries and from the dollar; so as to diversify their official reserves or even to support their currency.
At the same time, private capitals flowing into the United States have significantly increased. The relative lack of interest in Treasuriesshown by foreign central banks has two main consequences.
First, the official sector is no longer the first foreign counterparty to the US Treasury. The share of the US debt held by foreign private investors, insurance companies, pension funds, hedge funds, is as important as the share held by foreign central banks and states.
And private investors often have an investment horizon shorter than the one of official investors. Their increasing weight could lead to greater volatility in interest rates.
Second, the total contribution of non-residents to the financing of US Treasury has diminished. If we put aside the securities purchased by the Federal Reserve as part of its monetary policy, the share of Treasuries held by non-residents was equivalent to 64% ten years ago, it is 42% today.
Given the official projections, which forecast that the US debt will almost double in the next ten years, the strengthening of non-residents' interest for Treasury securities seems essential. In the shorter term, it is to be hoped that, once achieved the landing of the Federal funds rate, the cost of covering exchange risk will reduce sufficiently so that the yield on Treasuries net of covering costs might become attractive again for non-residents.
