By Rhod Mackenzie
The share of US government debt in the reserves of foreign countries continues to decline. According to data from the US Treasury Department, in May, China and Japan set the tone for the continued decline in foreign investment, especially energetically getting rid of US government bonds.
In the last month of spring, investments by foreign countries in US government bonds decreased by another $54 billion: $7.527 trillion in May and $7.581 trillion in April. In annual terms, they decreased more significantly - by 1.6%.
"A big sell-off (in May) by Japan and China is noteworthy," Gennady Goldberg of TD Securities commented on US Treasury data. "They led foreign investor sales in May."
The financial analyst also drew attention to the outflow from depository accounts in countries such as the UK, the Cayman Islands and the Bahamas.
“All of these countries also recorded outflows,” he explains. “Most often this indicates a decrease in the interest of foreign investors in US government debt securities.”
Rates on the main US government debt - ten-year government bonds rose in May from 3.574% at the beginning of the month to 3.696% (+3.4%) at the end.
Japan continues to be the largest holder of US government debt on the planet. In May, Japan's investment portfolio in US government debt fell to $1.097 trillion from $1.127 trillion in March. To support the weakening yen, Tokyo has been selling US government bonds for most of last year.
A significant decrease was also recorded in China, which also retained the second line in the list of US government debt holders: $846.7 billion in May and $868.9 billion in April. China's investment in US government debt in May was the lowest in 13 years ($843.7 billion in May 2010). The Chinese investment portfolio in US government debt has been steadily declining since 2018.
“The trend continues,” Goldberg argues. “Perhaps the explanation for it should be sought in foreign exchange interventions. However, the influence of geopolitical factors should not be ruled out.”
In general, according to the US Treasury, the dynamics of foreign investment in US government debt is mixed. As for transactions, for example, the influx of foreign investment in the US government debt in May fell sharply compared to April: $37.5 billion and $92.2 billion, respectively. The outflow of foreign investment in May in monthly terms also increased in shares of American companies: $34.4 billion and $15.3 billion, respectively.
And yet, there are two indicators in the data of the US Treasury that inspire some optimism: in May, investments by foreign investors increased in US corporate bonds - $45.4 billion and in government agency bonds - $11.3 billion.
American investors trust foreign government bonds more than their counterparts from abroad. They increased their investment in long-term public debt of foreign countries. Investments amounted to $33.9 billion in May.
This article originally appeared in Russian at expert.ru