Seen again, the aversion to taking on long duration risk in bonds continues globally. Fresh multi decade highs in yields are being seen in Japan, Europe and the US (almost in Australia). With the US in particular, we continue to rely on the kindness of strangers in financing our deficits and at least from a foreign government perspective, they continue to walk away from our market. Foreign private investors have taken their place to an extent but some of that has been Cayman Island buyers, aka, hedge funds and buyers tapping UK banks and Euroclear in Belgium. Natural foreign buyers that recycle any balance of payments surplus are no longer parking that money on a net basis into US Treasuries. Gold instead has been a beneficiary.
Between a drop in holdings and declines in value, ‘foreign official’ holdings of both Treasury bills and bonds fell by $72.1b in the month of June according to the TIC data seen last night. Japan and China were the two biggest sellers with Japan still the biggest holder and China #3 behind the UK (which includes what’s been parked at UK banks from anywhere). Belgium, Cayman Islands and Luxembourg are right beneath them and can be anyone parking money there.
Foreign official holdings now make up just 12% of US Treasury holdings vs about 37.5% 15 years ago. This chart is from my friend Adam Josephson reflecting this:
Here are some other notable charts from the US Treasury in their TIC data release yesterday for June showing the total foreign breakdown of holdings.
Because of the strength of the AI trade, stocks haven’t cared about the persistent rise in global bond yields but it’s just a matter of when, not if, if this trend in rates continues, which I think it will as a bear on long duration.
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