Investors Reduce Funding In US Treasury In Face of Default
Foreign investors might reduce their funding in the US Treasury because of diminishing confidence in the US market. This might result if the US defaults on payment of its debts next month and as a result might just not maintain its AAA credit rating.
According to the Treasury Department, of the 9.31 trillion outstanding, marketable, US government securities, around half is owned by foreign investors.
According to Chris Sullivan, Chief Investment Officer, at the United Nations Federal Credit Union, in New York, immediate concern is to lift the US debt ceiling, failing which a major category of investors would be wiped out.
Investors are on tenterhooks as the deadline of 2nd August, for raising the debt ceiling, approaches. Some are even safeguarding themselves by hedging against default, even though there would be minimal returns in this process.
However, some investors believe that as there is not much safe alternative to the US Treasury and a default may actually bring investors back into investing in the US Treasury.
According to Stuart Thompson, a fund manager at Ignis Asset Management, at Glasgow, the US Treasury Market is like the foundation of a pyramid and the other global market structures depend on and are equally threatened by risks to the US Treasury. This could result in investments coming back to the US Treasury instead of going into other risky ventures.