What keeps interest rates low? Foreign investment

In 1978, foreigners held about $39 billion worth of Treasury bonds, a modest 12 percent of the Treasuries in circulation, according to the authors. By the summer of 2005, foreign Treasury holdings were just shy of $1.6 trillion, nearly 52 percent of the value of all Treasuries. China, Japan and Hong Kong are the big buyers.

Were it not for foreign investment, the authors say, interest rates on the key 10-year U.S. Treasury note would be nearly one percentage point higher than they are.

And if foreign investors unloaded the mammoth holdings they already have, the 10-year rate would be about two percentage points higher than it is, they say.

If that happened, monthly payments on a standard 30-year mortgage might be 30 percent higher.

No wonder China doesn't want to revalue their currency. They would lose money on all of the T-Bills they own. Amazing that over 50% of the Treasuries are owned by foreigners.

via Seattle Times