Wells Fargo & Company (WFC) Stock Forecasts

Summary

We think the big move higher in longer-duration U.S. Treasury yields already has occurred for this cycle, and that yields are likely to drift modestly lower for the balance of 2023. In part, that’s due to substantial foreign ownership of U.S. Treasuries. Total public debt owed by the U.S. federal government was $31.5 trillion at the end of 1Q23. Outside of U.S. investors, the two largest holders of U.S. public debt are Japan, which owns 3.5% of the debt, and China, which owns 2.7%. The other nations among the top 10 holders own 7.7% of the debt, so the top 10 holders collectively own 13.9%. The grand total of U.S. debt owned by foreign holders is $7.4 trillion, or about 23%. While the absolute holdings number is down about 3.0% over the past year, we suspect these holders are unlikely to dump much more of their holdings into the bond markets in the intermediate term. Historically, Japan’s holders have been long-term in nature, while their local sovereign-bond yields are almost zero and are not particularly enticing. China has little reason to sell a large portion of its holdings: the increase in supply would merely depress the price of the balance of its holdings and may even weaken the dollar — setting off trade repercussions as the country works on recovering from its “zero COVID-19” policy. Indeed, when some nations have lowered their U.S. Treasury holdings (such as Ireland, which sold off 18% of its stake over the past year), others have stepped in to buy (such as Canada, which increased its holdings by 17%.) We think this global demand for U.S. Treasuries should help keep a lid on long-term rates in 2023.