Foreign Investors Buy More US Treasuries in July, Bucking Trend of Recent Months

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Foreign holdings of U.S. Treasuries rose in July, data from the Treasury Department showed on Monday. China holdings plunged for the second month, but the country still held the most U.S. debt among all foreign countries, as shown in the visualization below. The circles represent the monetary value of treasury notes and bonds, while the two numbers beneath each country’s name indicate the share of the total debt held by that country.

The visualization was compiled using the report of the Treasury Department’s Major Foreign Holders of Treasury Securities. The list includes all foreign private and official holders of marketable treasury bills, bonds, and notes. The data is collected primarily from custodial records, meaning the actual owners of the debt are not always reflected in the list. This is particularly the case for the four smallest nations in the visualization—Cayman Islands, Bermuda, Luxembourg, and Bahamas—each holding fewer than 1.2 million people yet owning $741 billion worth of U.S. debt combined.

The top five foreign holders of treasuries are Japan, China, Brazil, Ireland, and Germany. Each has unique reasons for holding such a large share of the total debt, such as China’s desire to keep the yuan weak against the dollar or Japan’s low interest rates and aging population that will need more income in retirement. The United Kingdom, Belgium, and Luxembourg are also large holders of treasuries.

China’s holdings dropped to $821.8 billion in July, the lowest since May 2009. It has been shedding its Treasuries for months to diversify its foreign currency reserves and reduce its dependence on the dollar.

Overall, foreign ownership of Treasuries jumped to record highs in August. China and Japan boosted their holdings, while several other countries, including India, Indonesia, Malaysia, and Thailand, reduced theirs.

The increase in foreign holdings of Treasuries came despite a volatile interest rate environment muddied by a mixed set of economic numbers. The benchmark 10-year Treasury yield began the month at 3.858% and ended the month up 9.9 basis points to 3.957%.

The U.S. government will continue selling debt this year to finance its deficits and pay for ongoing military spending. This will pressure yields and could ultimately force the country to cut back on its ambitious infrastructure investments. This is expected to weigh on the economy, which was tepid in the third quarter but should pick up in the fourth. Overall, investors are still optimistic about the global outlook, even though a slowdown in China has dampened growth prospects. The Federal Reserve is expected to raise interest rates in September.

NY DAILY INSIDER

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