Two of America's Biggest Debt Holders Are Dumping Treasurys

What's happening?

Two of the world's largest sovereign wealth funds, Norway's $1.3 trillion Government Pension Fund Global and Japan's $1.6 trillion Government Pension Investment Fund, have recently reduced their holdings of U.S. Treasurys.

In the first quarter of 2023, Norway's sovereign wealth fund reduced its Treasury holdings by $2.6 billion, while Japan's sovereign wealth fund reduced its Treasury holdings by $5.8 billion.

Why is this happening?

There are a number of reasons why these sovereign wealth funds may be reducing their holdings of Treasurys.

• The Federal Reserve is raising interest rates, which makes Treasurys less attractive to investors.
• The U.S. dollar has been strengthening against other currencies, which makes Treasurys less attractive to foreign investors.
• The U.S. government is running a large budget deficit, which could lead to concerns about the long-term sustainability of U.S. debt.

What does this mean for the U.S. economy?

The reduction in Treasury demand from these sovereign wealth funds could put upward pressure on Treasury yields, which could lead to higher borrowing costs for the U.S. government and businesses.

It could also lead to a weaker U.S. dollar, which could make it more expensive for Americans to buy imported goods.

What should investors do?

Investors should be aware of the potential risks associated with investing in Treasurys, and they should consider their own risk tolerance and investment goals before making any investment decisions.

Investors who are concerned about the potential for rising Treasury yields may want to consider investing in shorter-term Treasurys, which are less sensitive to interest rate changes.

Investors who are concerned about the potential for a weaker U.S. dollar may want to consider investing in foreign currencies or assets.