Foreign holdings of US Treasuries fell in June after rising for a single month, with Japan, the largest holder, and China, the third-largest, leading the decline.
Foreign holdings of US government debt totalled $9.299 trillion in June, according to the US Treasury Department’s Treasury International Capital (TIC) data released on the 17th local time.
This represented a decline of $72.1 billion from $9.371 trillion in May. It was the third decline in four months since foreign holdings reached a record high in February, although the total remained 2.3% higher than in June 2024.
During the same period, US Treasury prices fell while yields rose as investor sentiment wavered amid a widening budget deficit and inflation remaining above target.
Higher yields directly increase borrowing costs for the US government. However, the data reflects not only actual buying and selling but also changes in the valuation of holdings caused by price movements.
Japan posts the largest monthly decline
Japan recorded the biggest drop, with its holdings falling by $26.4 billion, or 2.3%, from the previous month to $1.116 trillion.
Japan has remained the largest foreign holder of US Treasuries since overtaking China in 2019.
Analysts attributed the latest decline to intervention by the Japanese government in the currency market to support the weak yen.
To strengthen the yen, Japan needs to sell dollars, which can be raised by disposing of the US Treasuries it holds.
Late last month, US authorities joined the intervention effort. US Treasury Secretary Scott Bessent announced coordinated joint intervention by the US and Japanese monetary authorities.
Market watchers said the move was driven by concerns that continued Japanese sales of US Treasuries to support the yen could contribute to higher US borrowing costs.
Paresh Upadhyaya, a strategist at Pioneer Investments, said Japan’s latest move was clearly linked to currency market intervention.
He noted that, apart from last month’s intervention, Japan had also kept open the option of using the US Federal Reserve’s repurchase agreement, or repo, facility to obtain dollars by pledging Treasuries as collateral.
This would allow Japan to raise dollars without directly selling its Treasury holdings, making another round of Treasury sales less likely going forward, he added.
China and UK holdings also decline
China recorded the second-largest decline, with its holdings falling by $25.9 billion in June to $633.4 billion, a 4% drop from the previous month.
The amount was more than 13% lower than in June last year and marked the lowest level since September 2008, when China’s holdings stood at $618.2 billion.
The United Kingdom, the second-largest holder, also saw its holdings fall by 1% from the previous month to $939.9 billion.
As the UK is a major hub for holding US Treasuries on behalf of investors worldwide, fund flows through the country are also seen as an indicator of the direction of hedge fund positions.
Meanwhile, softer US economic data has contributed to a divergence between different Treasury maturities, steepening the yield curve.
The gap between two-year and 30-year Treasury yields widened to 113 basis points, its highest level since April.
