By Elizabeth Stanton
May 30 (Bloomberg) -- For the moment, at least, financing the U.S. budget deficit may be getting less arduous as foreign investors now own a record 80 percent of the Treasury notes due in three to 10 years.
Not since the 19th century have foreigners held so much American debt, said Alan Taylor, a professor of economic history at the University of California, Davis. International investors own $672 billion of the $835.4 billion Treasuries due in three to 10 years, according to research by Lawrence Dyer, a New York- based strategist at HSBC Securities USA Inc., the investment banking arm of HBSC Holdings Plc in London.
While the Central Bank of China in Taipei and the Bank of Korea say they have had their fill of Treasuries, the 22 percent rise in U.S. dollar reserves led by Brazil and China during the past year makes Treasuries irresistible.
Percentage of Deficit
The last time foreigners owned so much U.S. debt was in the mid-19th century, when state and corporate bonds for the construction of railroads, canals and highways were purchased by Europeans, said Taylor, the University of California professor.
The deficit as a percentage of GDP peaked at 5.2 percent in 1983, and declined to 1.6 percent in 2006. This year, the deficit probably will shrink to 1.5 percent of the economy, according to the Congressional Budget Office
China more than doubled its holdings of Treasuries in the three years ended March 31 to $420 billion, according to U.S. government data. Members of the Organization of Petroleum Exporting Countries did the same, increasing their investments to $113 billion. Brazil now owns $70.6 billion of U.S. government debt, up fivefold since 2004.