(New York)

There is a significant minority of investors who have a very particular worry about the Treasury market right now. That worry is that foreign demand for Treasuries is slumping, which could cause a big sell-off or sustained period of losses. The potential issue has two parts—the first is that a huge amount of Treasury issuance is set to take place, the second is that foreign holdings of Treasuries are at their lowest in 15 years. The combination of seemingly low demand with high supply is making some think the bonds could be in for a rout alongside forthcoming auctions. JP Morgan strategists estimate that yields on Treasuries will rise 7-8 basis points for every $200 bn of Treasuries sold. Foreigners hold $6.3 tn of Treasuries.

FINSUM: This could be a problem, but given that central bank reserves have not been growing, it makes sense that foreign Treasury holdings haven’t either. Foreign governments still need Dollar liquidity, so there is a built in demand for Treasuries which we think won’t simply evaporate.