For the third month in a row, foreign inflows into US Treasury securities were recorded in January

 

Net foreign inflows into Treasuries increased for the third month in a row in January, totaling $74.36 billion, according to data released by the US Treasury Department on Tuesday. According to Treasury International Capital (TIC) data, private overseas investors purchased $62.22 billion in Treasuries in January, while foreign official institutions purchased $12.29 billion. Foreigners have purchased Treasuries in eight of the last twelve months, including a $118 billion net monthly purchase in March 2021.

The data revealed a net TIC inflow of $294.2 billion. Net foreign private inflows totaled $270.8 billion, while net foreign official inflows totaled $23.4 billion. However, total foreign holdings fell as yields rose. The 10-year Treasury yield in the United States peaked at 1.9020 percent in January and ended the month at 1.7838 percent, up about 27 basis points from the end of December. The yield on the two-year note increased to 1.1846 percent in January, up from 0.7341 percent in December, as markets anticipated a Federal Reserve interest rate hike to slow price increases and prevent hotter inflation.

The Fed is expected to raise its policy rate by 0.25 percent on Wednesday, the first increase since 2018, and to announce the end of pandemic-era bond purchases, with the goal of beginning to let its massive balance sheet shrink. Several additional rate increases are expected this year and next. Foreign holdings of Treasury securities fell to $7,662 trillion from $7,747 trillion, with custodian countries such as the United Kingdom, Belgium, Ireland, and Luxembourg leading the way. If a foreign resident holds a U.S. Treasury security in a custodial account in a third country, the true ownership of the security will not be reflected in the data.

“It does show that a lot of foreign investors were selling their Treasury holdings during the month,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities, adding that it was consistent with the month-long sell-off in Treasuries. Japan’s holdings of Treasury securities fell by just under $1 billion in December, to $1.303 trillion, but it remained the largest non-US holder of Treasuries. China, the world’s second largest holder of Treasuries, saw its holdings fall to $1.060 trillion in December, down from $1.068 trillion in December.

“That’s consistent with the really big jump in rates we saw early in the year simply on expectations of stronger global economic growth and potentially more hawkish central banks,” Goldberg said. “As a result, the data clearly matches the price action at the start of the year.” Other asset classes saw an inflow of $7.62 billion in January, reversing a net outflow of $4.02 billion in December.