Foreign Investors Lose Appetite for Treasuries as Deficit Rises

Bloomberg reports:

The U.S. government is growing more dependent on investors from abroad just as their appetite for Treasury securities is waning.

Overseas investors, who own half of all U.S. government debt, bought 14 percent of the $79 billion in benchmark 10-year notes auctioned this year, down from 21 percent in 2004, Treasury Department data show. Bidders including foreign central banks purchased a smaller percentage of the $44 billion in three-, five- and 10-year notes the Treasury sold last week than they did a year ago.

A drop in demand may extend the slump that pushed Treasury yields to the highest this year, raising the government's borrowing costs to finance a $319 billion deficit. The U.S. will borrow a record $171 billion from January to March, about double the amount this quarter, to help pay for relief efforts after Hurricanes Katrina and Rita.

``I'd wait before buying because there is still more upside for yields,'' said Masayuki Yoshihara, a Tokyo-based investor who helps manage the equivalent of $25 billion at Sumitomo Life Insurance Co., Japan's fourth-largest life insurer. Investors ``are cautious about buying too aggressively right now with yields rising so quickly,'' he said in a Nov. 10 interview.

You can guess what it means for mortgage rates.