Record Surge in Foreign Holdings of U.S. Treasuries

NEW YORK (Reuters) – Foreign holdings of U.S. Treasuries surged to a record high in August, as reported by the Treasury Department on Thursday. This marked the fourth consecutive month of increases.

Holdings rose to $8.503 trillion in August, up from $8.338 trillion in July, representing an 11.5% increase from the prior year.

The benchmark 10-year Treasury yield began August at 3.978% and concluded the month at 3.844%, a decline of 13.4 basis points. This drop occurred as Federal Reserve officials hinted at an easing cycle, with inflation approaching its 2% target.

The Fed ultimately reduced rates by 50 basis points on Sept. 18.

Japan retained its position as the largest non-U.S. holder of Treasuries with $1.129 trillion, the highest amount since March, and has seen increases over the last three months.

In contrast, China’s Treasuries declined for a second consecutive month in August, down to $774.6 billion. This decline follows a low of $767.4 billion in March, which was the smallest since January 2010.

China's record high was $1.315 trillion in June 2011.

Alongside Treasuries, major U.S. asset classes also experienced inflows.

In transaction terms, U.S. Treasuries recorded foreign inflows of $19.2 billion, significantly lower than the $55.9 billion seen in July.

Foreign investments also continued in U.S. corporates and agencies with inflows of $41.7 billion and $4.2 billion, respectively.

U.S. equities reported substantial foreign purchases of $64.8 billion in August, up from $43.7 billion in July.

Cumulatively, net foreign acquisitions of both long- and short-term securities indicated a net inflow of $79.2 billion in August, a sharp decrease from $159.1 billion the previous month.

Meanwhile, U.S. residents boosted their investments into long-term foreign securities, net purchasing $18.4 billion in August, a reversal from a $400 million sale in July.