Japan overtakes China as largest holder of US treasuries as China sells off

  • US Treasury Department data show Japan is now the largest holder of US treasury securities with $1.15 trillion.
  • China was the previous largest holder but has sold off $49 billion in the last year.

Data from the US Treasury Department show Japan has overtaken China as the largest holder of US treasury securities. This follows a trend of increases in Japan’s holdings and simultaneous decreases in China’s holdings.

The data show that in the last year, Japan’s stock of US treasuries has increased $117.8 billion to a total of $1.15 trillion, a +11.5% increase. During the same period, China’s holdings fell $49 billion to a total of $1.10 trillion, a -4.3% decrease.

Japan’s domestic benchmark 10-year treasury bond has been in negative yield territory for much of this year. Japan is not alone in this predicament — yields are low all over the world and even negative in several regions. Because investors get less money back than they put in to negative yield bonds, they have a strong incentive to find other options. The US treasury bond market is a haven of relatively high yield internationally and has been a magnet for international capital.

But the trend is the opposite for Chinese holdings of US treasuries. Chinese bond yields have been higher than those of the US, and the trade war which has been escalating for months has lowered demand in China for US treasuries. The change could indicate a strategic move to distance the Chinese economy from that of the US.

Interestingly, Hong Kong holdings of US treasuries (which are treated as separate from mainland China in US Treasury Dept data) have surged from $31.9 billion to $224.2 billion during the same period, a +16.6% jump. Hong Kong has lately been at odds with the mainland on several issues, including the trade war with the US and the handling of pro-democracy protests which have rocked the city in recent months.

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