China is the largest foreign holder of US Treasuries but its purchases have flatlined in recent years, raising concerns that the declining demand could weigh on US government bond prices and push interest rates higher.
The country’s total holdings fell $13.7bn to $1.15tn in September, according to data from the US Treasury released on Friday. The drop marks the fourth straight month of declines. The total amount of Treasuries held by foreign investors has followed a similar path to its largest holder, hovering slightly above $6tn since 2014. The total fell $63.3bn during September to $6.22tn.
The data mixes together sales and purchases from foreign official institutions like central banks as well as other foreign investors. Separate data shows official institutions have been driving selling activity this year. September showed that while other investors remained net buyers, the purchases fell to just $3.8bn, from $55.6bn in August.
Analysts said that while the shifts in foreign demand are unlikely to have an outsized impact on the Treasury market in the near-term, it raises concerns going forward as America’s debt burden continues to grow.
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Foreign investors still own 40 per cent of the US Treasury market, but that number has declined from the almost 50 per cent share recorded at the start of 2015.
Europe also turned net seller in September, shedding $3.4bn after two consecutive months of buying. The Caribbean, indicative of hedge fund demand for Treasuries, sold $17.8bn.
Analysts also warn that the data shows the location of the trade rather than the domicile of the holder and so trades can appear as buying or selling activity by one country, when the actual investor is located elsewhere. For example, the UK is a major financial center so the buyer may not necessarily be UK-based.