China increased US debt holdings for first time in six months in November despite overall decline
- Chinese holdings rose to US$1.063 trillion in November from US$1.054 trillion in October, with China remaining the second largest non-US owner of US debt
- Foreign investors held US$7.053 trillion in US government debt in November, down from US$7.068 trillion the previous month
Foreign holdings of US Treasuries declined for a fourth straight month in November, although China increased its load of American debt for the first time in six months, data from the US Treasury department showed on Tuesday.
Japan’s holdings, the largest non-US holder of Treasuries, slipped to US$1.260 trillion in November from US$1.269 trillion in October, the fourth consecutive monthly decline.
Ben Jeffery, rates strategist, at BMO in New York, said going forward it would be interesting to monitor Japanese holdings of US Treasuries given the weakness of the US dollar versus the yen.
“The yield available to Japanese investors when they hedge Treasuries back to yen has become increasingly attractive because of the dollar’s weakness,” he said, which could well prompt them to buy US debt again.
The US dollar fell nearly 1 per cent against the yen in November, and for the whole of 2020, it dropped 5 per cent.
For Japanese investors, buying US 10-year debt and hedging back to yen using three-month currency forwards earned a positive return last year, after going negative in 2019 and for nearly three years before that due to higher US interest rates.
At the end of November, US benchmark 10-year Treasury yields was at 0.842 per cent, little changed from 0.848 per cent at the beginning of the month.
On a transaction basis, US Treasuries showed foreign inflows of US$9.646 billion in November, from outflows of US$20.07 billion in October, from inflows of US$22.53 billion in September. US Treasuries posted inflows in six of the last 11 months.
Foreign investors, meanwhile, bought US$61.932 billion in US equities in November, from US$24.07 billion inflows the previous month. November’s foreign buying of US stocks was the largest since May last year, when equities saw record foreign inflows of US$79.7 billion.
Foreign investors have added US stocks for seven straight months.
Data further showed US corporate bonds had a minor net inflow of US$867 million in November, from outflows of US$21.51 billion in October. Foreigners have sold US corporate bonds in four of the last six months.
Overall, net foreign acquisitions of US long-term and short-term securities, as well as banking flows amounted to a net inflow of US$214.1 billion in November, up from a net outflow of US$11.1 billion in October.