US Treasuries Have Become Unappetizing for Foreign Central Banks and Governments
4 hours ago
- Foreign central bank and government holdings of US Treasuries dropped to $3.77 trillion in July, near 2012 levels, while outstanding Treasuries have tripled and inflation rose 48% since 2012.
- The share of foreign official holdings fell from 34% in 2012 to 12.8% in July, the lowest since 1993.
- The US has become less dependent on foreign central banks and more reliant on opaque financial centers like the Cayman Islands, where US hedge funds and companies hold Treasuries.
- Total foreign holdings fell $50 billion in July to $9.25 trillion, driven by private foreign holdings that include US entities domiciled abroad.
- Japan sold $13 billion in July (cumulative $135 billion from Feb-Jul) to support the yen, making profits due to yen depreciation against the dollar.
- China and Hong Kong have dumped $587 billion since 2015, reducing their share to just 3% of marketable Treasuries.
- Seven largest financial centers (UK, Belgium, Cayman Islands, Luxembourg, Ireland, Switzerland, Singapore) hold $3.28 trillion, about 11% of all marketable Treasuries and 35% of foreign holdings.
- Canada and France saw large month-to-month swings, likely due to data noise or financial center activity.
- Real interest rate declines have made Treasuries less appealing for foreign central banks, while leveraged basis trades by hedge funds fill the gap.