Data Shows US Treasury Foreign Holdings Rise in July, China’s Holdings Decline

Foreign holdings of U.S. Treasuries extended their upward trajectory for the second consecutive month in July, defying the backdrop of interest rate uncertainty fueled by a medley of economic indicators. According to data from the Treasury Department, total foreign holdings of U.S. Treasuries surged to $7.655 trillion, a noticeable uptick from the preceding month’s $7.562 trillion. Remarkably, this marks a 2.2% year-over-year increase in overseas holdings.

However, amid this broader trend, China’s stockpile of U.S. Treasuries underwent a notable decline, plummeting to $821.8 billion. This represents the lowest level observed since May 2009. Analysts speculate that this reduction in China’s Treasury holdings could be a strategic maneuver to buttress its weakening currency, the yuan, by offloading U.S. debt.

The 10-year Treasury yield experienced a degree of volatility over the course of July. It embarked on the month at 3.858% and closed at 3.957%. This fluctuation reflects the unease in the market stemming from economic uncertainties.

Interestingly, even amid this uncertainty, foreign investments continued to flow into U.S. Treasury debt. Gennadiy Goldberg, who serves as the head of U.S. rates strategy at TD Securities, pointed out that the increase in foreign holdings originated from associated custodians located in offshore financial centers such as the Cayman Islands, Luxembourg, and Bermuda. This dispersion of buyers makes it challenging to pinpoint the precise entities behind the purchases.

Japan retained its position as the most substantial non-U.S. holder of U.S. Treasuries, boasting holdings amounting to $1.112 trillion in July.

While U.S. asset classes presented a mixed performance in July, a discernible reduction in net foreign inflows was observed in Treasuries and U.S. equities. Interestingly, foreign investment in U.S. corporates and agencies demonstrated noteworthy inflows during the same period.

Furthermore, U.S. residents displayed an appetite for long-term foreign securities, registering net purchases totaling $36.8 billion in July. This underscores the intricate interplay of global capital flows and the ongoing dynamics of international finance.