According to the latest data from the US Department of the Treasury, foreign holdings of US treasury bonds reached a historic high in July, marking the third consecutive month of record highs, with Japan and the UK being the main drivers of the increase. However, China’s holdings have dropped to a 16-year low, with experts analyzing that Beijing is adjusting its strategy in an attempt to reduce reliance on the US dollar to cope with domestic economic slowdown and international trade restrictions.
The US Department of the Treasury released data on Thursday, September 18th, showing that foreign holdings of US treasury bonds rose to $9.159 trillion in July, up from $9.126 trillion in June, marking the third consecutive month of record highs. This represents an almost 9% year-on-year increase.
As of July, Japan is the largest holder of US treasury bonds among foreign countries, with holdings reaching $1.151 trillion, a new high since March 2024.
The UK is the second largest holder of US treasury bonds, with holdings close to $900 billion, also reaching a historic high, showing an increase of around 5% from June’s $858 billion.
However, China’s holdings of US treasury bonds dropped to $730.7 billion, the lowest point since December 2008 when China held $727.4 billion worth of US bonds.
Over the past decade, China has been gradually reducing its holdings of US treasury bonds, taking into account both strategic and market factors. Strategically, China is seeking to reduce its reliance on the US dollar, including cutting foreign exchange reserves and decreasing the use of the US dollar in trade and overseas investments. At the same time, China is gradually selling off US treasury bonds to support the Chinese yuan.
Analysts point out that China’s economic slowdown, challenges after the Covid-19 pandemic, and trade barriers have weakened China’s export income.
Nevertheless, demand for US treasury bonds from foreign countries remains strong.
In terms of trading, there have been noticeable fluctuations in the flow of funds from foreign investors into US treasury bonds: in May, foreign funds inflow hit a nearly three-year high, followed by outflows in June, and a return inflow of $58.2 billion in July.
(This article referenced a report from Reuters)