Foreign Treasury Pile Shrinks With China Further Trailing Japan
Japan overtook China as the top foreign owner in June, and China’s holdings have fallen consistently since then.
(Bloomberg) -- The tally of U.S. government debt held by other countries continues to shrink, leaving Japan with a larger lead over China as the top foreign owner, according to the latest data from the Treasury Department.
While Japan’s holdings of U.S. notes, bills and bonds fell $7.2 billion to $1.16 trillion, China’s share dropped more -- by $12.4 billion to $1.09 trillion. That’s the smallest amount since March 2017. Nonetheless, each nation still holds more U.S. government securities than the combined holdings of the rest of the top five: the U.K., Brazil and Ireland.
The Treasury’s report, released on Thursday, showed total foreign ownership of Treasuries declined in November, dropping $40.6 billion to reach $6.74 trillion.
Japan overtook China as the top foreign owner in June, and China’s holdings have fallen consistently since then. In November, the protracted negotiations over a trade deal between the U.S. and China hit a particularly rough patch as President Donald Trump prepared to sign legislation supporting the Hong Kong protesters.
Jefferies senior economist Thomas Simons said that since the Treasury Department data are mark-to-market, the totals may shrink when Treasuries are selling off, as they were in the last quarter of 2019. The declining trend in China’s stock of Treasuries is attributable to the trade dispute, however, it’s probably less about retaliation than reduced U.S. imports of Chinese goods.
“We’ve limited our trade with China,” Simons said. “So they’re having fewer dollars to invest and don’t have to buy as many Treasuries.”
Simons expects that the agreement signed this week between the world’s two largest economies on the first phase of a trade deal should pave the way for China to rebuild its holdings. If that’s the case, it should start to show up in the monthly data around May, in his view.
Japan is also engaged in bilateral trade talks with the U.S., but its holdings of Treasuries have trended higher over the past year. Though hedging costs have deterred some overseas investors, many are still attracted to the potential return on U.S. government securities while yields on roughly $11 trillion of global debt, including much of Japan’s market, remain negative.
Yields on benchmark 10-year Treasury notes were trading around 1.8% on Thursday.
To contact the reporter on this story: Emily Barrett in New York at ebarrett25@bloomberg.net
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Vince Golle, Nick Baker
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