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Foreign holdings of US Treasuries increase in July, China holdings plunge -data

Published 2023-09-18, 06:18 p/m
© Reuters. FILE PHOTO: A bronze seal for the Department of the Treasury is shown at the U.S. Treasury building in Washington, U.S., January 20, 2023.  REUTERS/Kevin Lamarque/File Photo

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Foreign holdings of U.S. Treasuries rose in July, data from the Treasury Department showed on Monday, rising for a second straight month despite an uncertain interest rate outlook muddied by a mixed set of economic figures.

Total holdings of U.S. Treasuries climbed to $7.655 trillion in July, up from $7.562 trillion in the previous month. Compared from a year earlier, overseas holdings were up 2.2%.

China's stash of Treasuries dropped to $821.8 billion, the lowest since May 2009, when it had $776.4 billion, data showed.

Analysts said China has been under pressure to defend its weakening currency, the yuan, and the selling of U.S. debt may have been used for intervention purposes to prop it up.

The benchmark 10-year Treasury yield started July at 3.858%, rising 9.9 basis points (bps) to 3.957% by the end of the month.

"There is a huge inflow into U.S. Treasury debt despite a lot of volatility in rates in July," said Gennadiy Goldberg, head of U.S. rates strategy at TD (TSX:TD) Securities in New York.

"A lot of the increase in foreign holdings was from the Caymans, Luxembourg, Bermuda, which are associated with custodians. So it's difficult to know exactly who the buyers were," he added.

Japan is still the largest non-U.S. holder of Treasuries with $1.112 trillion in July, up from $1.105 trillion in June.

"We saw some buying by Japanese investors despite the fact that on a hedged basis U.S. Treasuries are not particularly attractive," Goldberg said. "That suggests there may be some unhedged buying of Treasuries."

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Major U.S. asset classes showed mixed results during the month, data showed.

Net foreign inflows into Treasuries slid to $200 million in July from $57.3 billion in June.

Net foreign flows into U.S. equities also fell, dropping to $28.9 billion in July from $120.4 billion the previous month.

Foreign buying of U.S. corporates and agencies in July notched inflows of $8.4 billion and $8.1 billion, respectively.

Data also showed U.S. residents increased their holdings of long-term foreign securities, with net purchases of $36.8 billion in July.

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