IN the age of President Donald Trump, America’s biggest foreign creditors are suddenly having second thoughts about financing the U.S. Government.

    In Japan, the largest holder of U.S. Treasuries, investors culled their stakes in December by the most in almost four years, the U.S. Ministry of Finance’s most recent figures show. What’s striking is the selling has persisted at a time when going abroad has rarely been so attractive. And it’s not just the Japanese. Across the world, foreigners are pulling back from U.S. debt like never before.

    From Tokyo to Beijing and London, the consensus is clear: few overseas investors want to step into the US$13.9 trillion U.S. Treasury market right now. Whether it’s the prospect of bigger deficits and more inflation under Trump or higher interest rates from the Federal Reserve, the world’s safest debt market seems less of a sure thing — particularly after the upswing in yields since November. And then there is Trump’s penchant for saber rattling, which has made staying home that much easier.

    “It may be more difficult than usual for Japanese to invest in Treasuries and the dollar this year because of political uncertainty,” said Kenta Inoue, chief strategist for overseas bond investments at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “Treasury yields may rise rapidly again in the near future, which will continue to discourage them from buying aggressively.”

    Nobody is saying that foreigners will abandon Treasuries altogether. After all, they still hold US$5.94 trillion, or roughly 43 percent of the U.S. government debt market. (Though that’s down from 56 percent in 2008.) A significant drawdown can harm major holders like Japan and China as much as it does the United States.

    And, of course, homegrown demand has of late been able to absorb the pickup in overseas selling. Since reaching 2.64 percent in mid-December, yields on benchmark 10-year notes have come back and are essentially flat this year. They ended at 2.41 percent Friday.

    Nevertheless, any consistent drop-off in foreign demand could have lasting consequences on America’s ability to finance itself cheaply, particularly in light of Trump’s ambitious plans to boost infrastructure spending, cut taxes and put “America First.” The president has singled out Japan and China, the two biggest overseas creditors, as well as Germany, for devaluing their currencies to gain an unfair advantage in trade.

    In December, Japanese investors reduced their investments in U.S. debt by 2.39 trillion yen (US$21.3 billion) after a smaller pullback in November. While only a fraction of Japan’s US$1.1 trillion in holdings, they were first the back-to-back declines since the start of 2014. China, which owns just over US$1 trillion in Treasuries, has been selling since May. Its holdings are at a seven-year low. (SD-Agencies)