CFR economist Brad Setser writes:
Foreign demand for long-term Treasuries has disappeared over the last few months….The rolling 3m sum bounces around a bit, but foreign demand for long-term Treasuries in November, December and January was as subdued as it has been for a long-time. …
For all the talk of safe haven flows to the US — foreign demand for all long-term US bonds has effectively disappeared….
What have foreign investors been buying? Short-term Treasury bills. In huge quantities.[The] surge in demand for [treasury] bills now seems to be fading….
If — as seems likely — foreign demand for Treasuries fades long before the US fiscal deficit, the US Treasury will need to sell an awful lot of Treasuries to American investors. For the past several years I have argued that it was almost impossible to overstate the impact of central bank demand on the Treasury market.
That may no longer be the case going forward.
Setser notes with respect to China:
Over the past three months, almost all the growth in China’s Treasury portfolio has come from its rapidly growing holdings of short-term bills not from purchases of longer-term notes.
And with respect to Russia:
Russia also, interestingly, added to its holdings of short-term Treasury bills.
With foreign governments shifting from long-term to short-term U.S. treasuries, the Fed itself may be one of the last remaining players of any significance still buying long-term treasuries.