Foreign holdings of Treasuries rise in November led by Japan -data

BY Reuters | TREASURY | 01/18/23 05:50 PM EST

By Gertrude Chavez-Dreyfuss

NEW YORK, Jan 18 (Reuters) - U.S. Treasuries held by foreigners rose in November for the first time in three months, data from the U.S. Treasury department showed on Wednesday, as the decline in yields enhanced the allure of government debt for investors.

Foreign holdings advanced to $7.273 trillion in November, from a revised $7.131 trillion the previous month. The increase in holdings came after dropping in October to their lowest level since May 2021.

Investors had sold Treasuries the last few months with the rise in rates, which made it unprofitable to hold U.S. debt.

"The reversal makes sense because rates actually peaked in November and continued to move lower," said Gennadiy Goldberg, senior rates strategist at TD Securities in New York.

The benchmark 10-year Treasury yield started November at 4.061% and ended the month at 3.701%.

Signs of ebbing inflation prompted the Federal Reserve to adopt a more dovish tone in November. Fed Chair Jerome Powell said on Nov. 30 that the U.S. central bank could ease the pace of interest rate hikes "as soon as December" but warned that the fight against inflation was far from over.

The increase in foreign buying was led by Japan, whose holdings expanded to $1.082 trillion in November from $1.064 trillion in October. Japan, the largest non-U.S. holder of U.S. government debt, reduced its load of Treasuries in the previous four months to defend the struggling yen.

"The buying (by foreigners) was quite dispersed which shows you that going forward you're probably going to get an uncertain amount of demand from foreign investors," TD's Goldberg said.

"They are probably not going to jump in with both their feet. But this is a pretty positive sign and there may be a little bit more stabilization in foreign demand for Treasuries."

Data further showed that holdings of China, the second largest non-U.S. holder of Treasuries, fell to $870 billion in November from a revised $877 billion in October. China's holdings were the lowest since May 2010 when it had $843.7 billion.

China has been selling Treasuries to help prop up its weakening currency against a resurgent dollar.

On a transaction basis, Treasuries showed foreign inflows of $54.21 billion in November from $61.907 billion in October. Treasuries have seen foreign inflows for seven straight months.

Data also showed foreign inflows in U.S. stocks in November for the first time since December 2021. Foreigners bought $42.907 billion in November, but sold $24.37 billion in October. (Reporting by Gertrude Chavez-Dreyfuss, Editing by Rosalba O'Brien)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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