Latest U.S. Treasury holdings data released after the government shutdown shows overseas investors maintained near-record exposure to U.S. debt in September, barely retreating from August's all-time high. The figures expose a stark contrast between the "de-dollarization" rhetoric and actual investment behavior, as sovereign wealth funds and private institutions aggressively accumulated Treasuries during the yield rebound and Fed pivot expectations.
With duration risk premiums easing and borrowing costs declining amid growing rate-cut bets, Treasury returns have surged—year-to-date total returns approach 7%, tracking toward the best performance since 2020. The $30 trillion market continues to defy doomsday inflation scenarios that failed to materialize.
Detailed breakdowns reveal Japan, the largest foreign holder, boosted its stake by $9 billion to $1.19 trillion—the highest since August 2022. Meanwhile, second-ranked UK trimmed $39.3 billion to $865 billion. China, the third-largest holder, made a negligible $500 million reduction to $700.5 billion, while Belgium (which some analysts suggest holds Chinese custodial accounts) added $12.5 billion to $466.8 billion.
The Bloomberg U.S. Treasury Index posted gains in both August and September, though valuation effects played a minor role in the $10 billion monthly decline of aggregate foreign holdings to $9.25 trillion from $9.26 trillion.
This accumulation occurred despite early 2025's bearish sentiment, when Trump-era deficit fears and trade war concerns drove long-term yields higher. Even as gold's rally fueled "de-dollarization" narratives, investors ultimately treated U.S. debt as the "cleanest dirty shirt" among G-7 alternatives—a market combining scale, liquidity, and relatively favorable monetary policy divergence.
"Japan's voracious buying stands out," noted State Street's Lee Ferridge, linking it to yen weakness and domestic bond market skepticism. The currency hit February lows against the dollar this week, ranking as the G-10's worst performer in 2025.
TCW's Hovhannisyan echoed the clean shirt analogy: "When you examine alternatives, each comes with its own challenges. There's no equally liquid substitute." Treasury Secretary Scott Bassett recently dismissed "Sell America" fears, citing robust foreign participation in auctions.
Bank of America's Alex Cohen concluded: "We see zero evidence of capital fleeing core U.S. assets. The investment case remains compelling."
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