Foreign holdings of U.S. Treasury securities have witnessed a continued decline, with China and several other nations reducing their exposure to government debt, according to recent data from the Treasury Department.
Despite this trend, some countries, such as Japan and the United Kingdom, have shown increased interest in U.S. bonds.
October sees drop in U.S. bond holdings, China continues reduction
In October, global holdings of U.S. bonds decreased by 0.5 percent, reaching $7.565 trillion, down from $7.604 trillion in September.
China, for the eighth consecutive month, reduced its U.S. assets, totaling $769.6 billion.
This ongoing reduction reflects a month-over-month decrease of approximately 1 percent and a yearly drop of more than 12 percent.
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Japan boosts U.S. debt holdings; Global portfolio reshaping persists
Japan, on the other hand, solidified its position as the world’s largest holder of U.S. government debt by acquiring nearly $12 billion in bonds in October.
Despite this increase, Tokyo’s holdings are down from an all-time high of approximately $1.3 trillion in 2021.
Other nations contributing to the reshaping of their portfolios include the United Kingdom, Ireland, France, and Canada. At the same time, Luxembourg, Belgium, Switzerland, India, and Brazil reduced their exposure to the growing national debt.
Foreign investors’ dwindling share and China’s strategic shift
Economist Wolf Richter observes that foreign investors have not kept pace with the escalating U.S. government debt, causing the share of their holdings to plummet to 22.4 percent, down from around 33 percent in 2015.
This shift, Richter argues, indicates a decreased dependency on foreign holders for U.S. debt financing.
Recent advice from a former official of the People’s Bank of China suggests that China is strategically reducing its holdings of U.S. Treasurys.
China’s adjustments, dollar bonds, and treasury concerns
Economist Yu Yongding emphasized the need for China to adjust its overseas assets and liabilities portfolio in an orderly manner, citing concerns about America’s credit rating downgrades and significant debt issues.
Brad Setser, a former Treasury official, estimates that approximately half of China’s reserves are in dollar bonds, emphasizing China’s efforts to diversify its reserves by supporting initiatives like the Belt and Road.
Amid growing concern about waning interest in Treasury securities, the Treasury Department’s plans to borrow $1.6 trillion through March 2024 raise questions about domestic and foreign interest.
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Auction improvement and fiscal caution in treasury markets
Recent auctions indicate a slight improvement, with primary dealers acquiring 13 to 17 percent of Treasury supply in December.
Experts caution that traders are becoming increasingly risk-averse, especially considering the long-term fiscal challenges facing the federal government.
Fitch Ratings and Moody’s Investors Service warn that the current trajectory of America’s finances is unsustainable, citing this year’s downgrades.
U.S. faces $2.02 trillion deficit; national debt nears $34 trillion
In fiscal year 2023, the U.S. government ran a $2.02 trillion budget deficit, higher than the previous estimate of $1.7 trillion.
The Committee for a Responsible Federal Budget’s president, Maya MacGuineas, acknowledges both successes and challenges in budgeting, highlighting the importance of addressing the growing national debt, which is approaching $34 trillion.
The evolving foreign investment landscape in the U.S. Treasury securities underscores the complex dynamics shaping global economic relationships and the challenges posed by escalating national debt.
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