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Foreign Investment in U.S. Bonds Rises in July, But China’s Holdings Decline

The U.S. Treasury Department’s latest report, released on September 19, reveals that foreign investors increased their purchases of U.S. government bonds for the second consecutive month in July. This uptick comes despite prevailing uncertainty surrounding interest rate prospects and somewhat lackluster economic data.

Foreign holdings of U.S. Treasury bonds climbed to $7.655 trillion in July, marking an increase from $7.562 trillion in June. In a year-over-year comparison, foreign investments in U.S. Treasury bonds grew by 2.2%.

However, China, the largest foreign holder of U.S. government bonds, experienced a notable decline in its holdings during the same period. In July, China’s holdings dipped to $821.8 billion, reaching the lowest level observed since May 2009. Back then, China held $776.4 billion in U.S. government bonds.

Analysts attribute China’s reduced holdings to its efforts to counteract the further depreciation of the yuan. It is speculated that China may have strategically sold U.S. government bonds to support the value of its currency.

The 10-year U.S. government bond yield, which opened July at 3.858%, experienced a slight increase, closing the month at 3.957%, representing a 0.099% rise.

The report indicates that a significant portion of the increased foreign holdings of U.S. government bonds originated from regions such as the Cayman Islands, Luxembourg, and Bermuda. These holdings were acquired through various asset managers, making it challenging to ascertain the precise identities of the buyers.

Despite the shifts in foreign investment, Japan continues to maintain its position as the largest foreign holder of U.S. government bonds. In July, Japan’s holdings reached $1.112 trillion, a modest increase from the $1.105 trillion reported in June.

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