Introduction
Boost in Holdings
According to the latest government data, Japan raised its holdings to $1.138 trillion last December, while China increased its holdings to $816.3 billion, and the U.K. raised its holdings to $753.7 billion. Alongside other net foreign acquisitions of long-term and short-term securities and banking flows, the total amount reached $139.8 billion, as reported by the Treasury Department on Thursday.
Market Trends
Foreign buyers exhibited increased activity amidst growing concerns about falling inflation in 2024 and Federal Reserve officials potentially reducing interest rates. Consequently, Treasury yields experienced a decline in December, with the 2-year rate BX:TMUBMUSD02Y recording its most significant monthly decrease since March of the previous year. Moreover, on a quarterly basis, yields witnessed their largest drops since March 2020.
Implications for the U.S. Economy
The decline in 10-year Treasury yields BX:TMUBMUSD10Y, which serve as a benchmark for financing much of the U.S. economy, played a role in facilitating a record-breaking corporate borrowing surge in January. Additionally, this decrease partially thawed lending in the commercial real estate sector.
Conclusion
Foreign investors, netting $40 billion of long-term Treasurys in December 2023, played a crucial role in boosting U.S. Treasury yields and shaping market dynamics. Their actions reflect a broader trend of economic shifts with potential implications for the global financial landscape.
