Foreign Holdings of US Debt Surge to Record High of $8.5 Trillion

Holdings of U.S. Treasurys increased to $8.5 trillion, up from $8.3 trillion in July and by nearly 12 percent from a year ago.

Japan remained the top holder of U.S. government debt, with Tokyo adding about $14 billion to $1.12 trillion.

China, the second largest holder of Treasurys, shed nearly $2 billion from its investment portfolio, lowering its stake to $774.6 billion. Beijing has engaged in a long-term crusade to decrease its exposure to U.S. Treasury debt, which has declined by approximately 4 percent since last year.

The UK is catching up to China, purchasing more than $15 billion in U.S. government debt for a total of $743.9 billion.

Other nations that added to their current holdings were France ($22 billion), Switzerland ($11 billion), Belgium ($9 billion), and India ($6 billion).

Canada and Germany were two of the three nations that trimmed their holdings, by $12 billion and $5 billion, respectively.

Foreign markets took advantage of T-bills—short-term debt securities ranging from four to 52 weeks—by buying $35 billion, bringing their total to $306.9 billion.

Yields on T-bills, from one month to one year, have been resilient even with the Fed cutting interest rates in September and planning to lower rates even more in the year ahead.

Over the past month, the overall Treasury market has trended upward, with the benchmark 10-year yield climbing by nearly 50 basis points to above 4 percent.

A part of the reason for the higher yields is that investors are resetting Federal Reserve policy expectations amid better-than-expected economic data, says Lawrence Gillum, the chief fixed income strategist for LPL Financial.

“Since Treasury yields have fallen recently alongside negative economic surprises, it isn’t surprising that yields are now moving higher given the better economic data and as fewer Federal Reserve rate cuts get priced into markets,” Gillum told The Epoch Times in an emailed note.

Foreign investors purchased about 78 percent of the supply. Primary dealers—companies that purchase the leftover supply—and direct bidders bought the remaining amount.

By the end of the auction, the high yield was 4.38 percent, up from 4.01 percent in the previous 30-year bond auction.

Althea Spinozzi, the head of fixed income strategy at Saxo Bank, says a large share of foreign investment demand is coming from European investors.

“While U.S. Treasuries remain unattractive for Japanese investors due to deeply negative yields once hedged against the yen, increased demand from European investors is likely to offset concerns about the large issuance volumes.”

Auctions over the past year have revealed consternation surrounding the U.S. government’s fiscal health.

“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch analysts said in August 2023.

US Debt Keeps Growing

Later this month, the Treasury Department will announce its borrowing estimates for the next six months.

Additionally, the nonpartisan budget watchdog noted that the budget shortfall would have been 13 percent higher—instead of 8 percent larger—from the previous fiscal year if it were not for timing shifts for certain payments.

“At nearly $2 trillion, last year’s deficit was almost double pre-pandemic levels. We face massive headwinds with debt set to reach an all-time record as a share of the economy by 2027; and we don’t even have a plan to address our fiscal challenges.”