Global investors have a new reason to pull back from U.S. debt

Foreign investors have plenty of reasons to be wary of U.S. government debt at the moment. Now there is another: They can often receive better returns buying bonds in their own countries.

- Jon Sindreu

Foreign investors have plenty of reasons to be wary of U.S.government debt at the moment. Now there is another: They can often receive better returns buying bonds in their own countries.

The risk of a weaker U.S. dollar and the cost of protecting against that risk, are making American assets less attractive around the world.

That comes at a bad time for the U.S. Treasury market, which is already contending with a darkening U.S. budget picture and the trade war.

Foreign investors likely don't fear a U.S. default or anything close. But the premium many once received for buying U.S. debt, thanks to higher long-term rates here, has disappeared.

That circumstance has resulted from the rising cost of protecting against, or hedging, currency moves. This is happening because short-term rates have stayed high in the U.S. relative to those in the rest of the world, and the Federal Reserve looks less likely to cut them anytime soon.

It isn't clear how much overseas investors contributed to the recent bond-market rout.

Official data show foreign Treasury holdings still rose in March. Similar governmentbond selloffs have also occurred in Germany, Britain, and Japan.

Still, the market's negative response to President Trump's tariffs, and Republicans tax-and-spending package, has often coincided with a falling dollar. This could signal capital flight.

Foreigners hold about onequarter of the Treasury market and lend significantly to U.S. corporations.

Will key financiers of American growth withdraw? Perhaps not, but they will likely demand to be compensated for the currency risk associated with the recent fall in the dollar, which comes with higher costs.