Foreign holdings of US Treasuries hit record high; Japan holdings rise

BY Reuters | TREASURY | 05/15/24 06:19 PM EDT

By Gertrude Chavez-Dreyfuss

NEW YORK, May 15 (Reuters) - Foreign holdings of U.S. Treasuries surged to a record high in March, data from the Treasury Department showed on Wednesday, rising for a sixth straight month.

Holdings of U.S. Treasuries increased to $8.091 trillion in March, up from a revised $7.971 trillion in the previous month.

"It's a pretty strong month for U.S. Treasuries: the largest foreign buying in three months," said Gennadiy Goldberg, head of U.S. rates strategy, at TD Securities in New York.

"We saw some stabilization after two months of rates moving higher. That encouraged a lot of buying."

The benchmark 10-year Treasury yield started March at 4.182% and ended the month at 4.194%, up 1.2 basis points, almost flat. In contrast, the 10-year yield rose nearly 39 basis points at the end of February from the beginning of that month.

Treasury yields had started to pull back a little bit in March after Federal Reserve officials, including Chair Jerome Powell, said at the time that inflation's decline appeared to be tracking the U.S. central bank's expectations.

The report also showed that Japan's stash of Treasuries also grew to $1.188 trillion, the largest since August 2022, when its holdings were at $1.196 trillion.

Market participants have been focused on Japan's Treasury debt holdings due to the threat of intervention from the country's monetary authorities to bolster the yen, which had plunged to a 34-year low of 160.245 against the dollar on April 29.

The Bank of Japan, which acts on behalf of the Ministry of Finance, eventually intervened early this month to stem the slide in the yen.

One of the many ways that the BOJ intervenes is selling U.S. Treasuries, which is denominated in dollars, and buying the yen.

China's pile of Treasuries, meanwhile fell for a third straight month in March to $767.4 billion, the lowest since January 2010, when the country's holdings dropped to $765.2 billion.

Treasury holdings of the world's second largest economy hit a record high of $1.315 trillion in June 2011.

Major U.S. asset classes also had inflows during the month, the data showed.

On a transaction basis, U.S. Treasuries posted inflows of $42.2 billion, compared with $87.4 billion in February.

Foreign buying of U.S. corporates and agencies also continued in March, with inflows of $52.9 billion and $800 million, respectively.

U.S. equities saw huge buying of $82.5 billion in March, up from a minor inflow of $800 million the previous month, data showed.

Overall, net foreign acquisitions of long- and short-term securities, as well as banking flows, showed a net inflow of $102.1 billion in March, sharply up from $42 billion in the month before. (Reporting by Gertrude Chavez-Dreyfuss; editing by Diane Craft)

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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