Foreign holdings of Treasuries drop to lowest since May 2021 -data

NEW YORK  – Foreign holdings of Treasuries in September dropped to their lowest level since May 2021, data from the U.S. Treasury Department showed on Wednesday, led by Japan and China whose currencies have struggled all year against a resurgent dollar.

Offshore holdings dropped to $7.296 trillion, from $7.509 trillion in August. Foreign holdings in May last year were at $7.144 trillion.

Japan’s stash of Treasuries dropped to $1.120 trillion in September, from $1.199 trillion the previous month. Japan, which remains the largest non-U.S. holder of U.S. government debt, reduced its load of Treasuries for a third straight month.

Part of the reduction could likely be due to Japan’s defense of its beleaguered currency, which has been under pressure as the Bank of Japan stuck to its ultra-easy monetary policy. That was in stark contrast to an aggressive Federal Reserve determined to quash stubbornly high inflation.

Japan spent up to a record 2.8 trillion yen ($19.7 billion) intervening in the foreign exchange market in September to prop up the yen.

In the year to end-September, the yen has plunged nearly 22 percent versus the greenback.

Holdings of No. 2 China also fell to $933.6 billion in September from $971.8 billion in August. China’s Treasuries have been under $1 trillion for six consecutive months. In June, China’s holdings slid to $967.8 billion, the lowest since May 2010 when it had $843.7 billion.

China’s yuan, much like the yen, has also been under pressure against the dollar and analysts said its central bank may have sold Treasuries as well to prop up the currency.

For the first nine months of the year, the dollar had gained nearly 12 percent versus the Chinese currency.

On a transaction basis, foreigners continued to pile into U.S. Treasury bonds and notes in September to the tune of $60.4 billion, after record inflows of a revised $175.2 billion in August.

Investors overall though have sold Treasuries on expectations the Fed will push the terminal fed funds rate to between 5-5.25 percent.

The benchmark 10-year Treasury yield started September at 3.265 percent, and ended the month at 3.804 percent, or a nearly 54 basis-point increase.

In other asset classes, U.S. corporate bonds posted inflows in September of $5.52 billion from $9.50 billion August. Foreigners were net buyers of U.S. corporate bonds for nine straight months.