U.S. debt market without the Fed

WASHINGTON, June 9 (UPI) -- Financial analysts are questioning who might step up and replace the U.S. Federal Reserve as the major buyer of treasuries after June.

The Fed is scheduled to end its $600 billion securities purchasing program June 30. In the past eight months it has been the largest buyer by far -- estimated as responsible for 85 percent of treasury purchases since November, The Washington Times reported Thursday.

"With the Fed pretty much out of the picture after June, it seems clear that foreign demand for Treasuries holds the key going forward," Morgan Stanley analyst David Greenlaw told the Times.

However, while China, Japan and Saudi Arabia are among the major holders of U.S. debt, "Do they expect the Chinese to reverse course on their current polity and start buying U.S. debt once again?" asked Peter Schiff, president of Euro Pacific Capital.

The Treasury Department is scheduled to issue $1.4 trillion in U.S. debt this year, but without the Fed's help it may have to raise interest rates to attract buyers.

Attracting foreign buyers is tricky, however, as rising U.S. prices and a weakening dollar puts a damper on foreign investors buying U.S. debt, as inflation and falling currency values diminish the value of the investments.