March Saw Biggest Drop in Foreigners’ Treasury Pile This Century

(Bloomberg) -- Foreign holdings of Treasuries slumped in March by the most this century as pandemic-related global market turmoil sent U.S. debt yields plunging to record lows and volatility surged.

Total foreign ownership of Treasuries dropped $256.6 billion to $6.81 trillion, according to a report from the U.S. government released Friday. That’s the biggest drop in data stretching back to early 2000.

The shift, which includes changes in the mark-to-market value of the securities, came as investors poured into the safest parts of global markets in a bid to shelter from the pandemic’s economic fallout. At the same time, liquidity stresses drove record swings in Treasury yields.

“The countries which saw the biggest outflows in their holdings were Saudi Arabia, Brazil, India -- emerging market countries that were seeing large capital outflows,” said BMO Capital Markets Strategist Jon Hill. “It makes sense that they would have to sell Treasuries to defend their currencies at a moment like that.”

The overall drop in foreign holdings runs counter to the increase in supply of U.S. government debt, though it pre-dates the latest surge in issuance to fund the CARES Act.

Related story on exodus from Treasuries by foreign central banks

Saudi holdings fell sharply, by $25.3 billion to $159.1 billion, a two-year low. And the totals of Japan and China are each still more than the combined totals of the next-largest holders, the U.K., Brazil, and Ireland.

The value of Japan’s holdings rose by $3.4 billion to $1.27 trillion, while those of China -- the second-largest holder -- sank $10.7 billion in March to $1.08 trillion.

“The two biggest foreign holders are still China and Japan, both comparatively little changed,” said BMO’s Hill “This was idiosyncratic and consistent with the volatile capital flows that we heard about in March.”

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