Foreign demand for US Treasuries slips in September, but Japan steps up buying

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NEW YORK (Reuters) -Foreign holdings of U.S. Treasuries slipped in September, data from the Treasury Department showed on Tuesday, declining for the first time in six months.

The Treasury finally released capital flows data after the federal government’s 43-day shutdown. Data for October will be released on December 18, the Treasury said.

Holdings of U.S. Treasuries edged lower to $9.249 trillion in September, slightly down from $9.262 trillion in August. But compared with a year earlier, Treasuries owned by foreigners were up 5.5%.

Japan remained the largest non-U.S. holder of Treasuries with $1.189 trillion in September, its biggest holdings since August 2022, when their stash of U.S. government debt hit $1.196 trillion. Japan’s holdings have increased for nine straight months.

China’s holdings of Treasuries, on the other hand, dipped to $700.5 billion in September from $701 billion in August. In July, its cache of Treasuries had fallen to $696.9 billion, the lowest since October 2008 when holdings tumbled to $684.1 billion.

The world’s second-largest economy is the third-largest holder of U.S. Treasuries, behind the United Kingdom.

It has been a gradual reduction of U.S. Treasury holdings for China over the past decade, which reflects both strategic and market-driven considerations, analysts said. Strategically, Beijing has sought to lessen its dependence on the U.S. dollar for reserves, trade settlement, and investment purposes.

China has also been trimming its Treasury portfolio to support the yuan. Analysts noted that a slowing economy, lingering post-COVID challenges, and rising trade barriers have curbed export inflows, adding pressure on Beijing to shore up its currency.

UK investors, meanwhile, also reduced their load of Treasuries to $865 billion in September, down from $904.3 billion in August.

On a transaction basis, foreign purchases of Treasuries fell to $25.5 billion in September, down from $48.5 billion in August, and $44.6 billion in July. In May, there were foreign inflows of $147.4 billion in Treasuries, the largest since August 2022.

Foreign investors, meanwhile, snapped up $132.9 billion in U.S. equities in September, up from $89.4 billion, and a massive improvement from outflows of $16.2 billion seen in July.

Data also showed that the net capital inflow into the United States totaled $190.1 billion, higher than the $187.1 billion in August. In July, there was a net capital outflow of $6.6 billion.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Lincoln Feast)