Foreign holdings of US Treasury securities declined in June, led by Japan, China and the United Kingdom, even as overseas investors continued to channel significant funds into US equities and corporate bonds.
Data from the US Treasury Department showed that foreign-held US government debt fell to $9.299 trillion in June, from $9.371 trillion in May. Despite the monthly decline, total foreign holdings remained 2.3 per cent above the level recorded a year earlier.
Japan posted the largest decline in dollar terms among the major holders, cutting its Treasury holdings by 2.3 per cent to $1.116 trillion from $1.143 trillion in May. It remained the largest foreign holder of US government debt though its holdings are well below the record $1.325 trillion reached in November 2021.
The United Kingdom, the second-largest holder, reduced its holdings by about one per cent to $939.9 billion from $948.6 billion. However, the figures should be interpreted cautiously because London is a major global custody and financial centre, meaning UK-attributed holdings can reflect the positions of international investors.
China recorded the steepest percentage decline among the three major holders, cutting its Treasury holdings by four per cent to $633.4 billion from $659.3 billion. The figure represents China’s lowest holdings since September 2008 and is more than 13 per cent below the level recorded a year earlier.
The reductions come amid changing global capital flows and growing sensitivity to US interest rates, currency movements, reserve-management strategies and expectations for US monetary and fiscal policy.
China’s continued reduction in Treasury holdings is particularly significant. Beijing has been gradually reducing its exposure to US government debt for years, suggesting a broader effort to diversify its foreign-exchange reserves and adjust its reserve-management strategy.
Japan’s position is also closely watched because Japanese investors are among the world’s largest sources of overseas capital. Movements in US Treasury yields, the yen-dollar exchange rate and the relative attractiveness of Japanese assets can influence demand for US government securities.
Shift Toward Equities
The decline in Treasury holdings comes as foreign investors continue to put substantial money into other US assets.
Foreign purchases of US equities reached $181.4 billion in June, while corporate bonds attracted $35.6 billion. By comparison, net foreign purchases of Treasuries stood at just $6.8 billion, down sharply from $56.6 billion in May.
Overall net foreign capital inflows into the United States rose slightly to $133.5 billion in June, from $131.5 billion in May.
The figures therefore suggest that foreign investors are not necessarily abandoning US assets but may be reallocating capital within the market, reducing exposure to government debt while maintaining or increasing positions in equities and corporate credit.
For financial markets, the key issue is whether the June decline represents a temporary adjustment or the beginning of a longer-term shift in global asset allocation.
A sustained reduction in foreign demand for US Treasuries could put upward pressure on US borrowing costs and influence the dollar and global bond markets, particularly as Washington faces substantial government financing needs.
