Foreign investors reduced their holdings of U.S. Treasuries by $50.4 billion in July, with both Japan and China cutting their positions while the UK bucked the trend by adding to its holdings.

Data released by the U.S. Treasury Department on Wednesday showed that the scale of U.S. Treasuries held by overseas investors fell significantly in July, decreasing by $50.4 billion from June to $9.25 trillion, the lowest level since last October. Among them, the declines in holdings by France and Canada were particularly notable, while Japan and China also reduced their U.S. Treasury holdings, whereas the UK bucked the trend with a large increase. It should be noted that the U.S. Treasury Department's data on foreign investors' U.S. Treasury holdings are affected not only by actual buying and selling activity but also by valuation changes brought about by bond price movements. Therefore, a decline in holdings in a single month does not necessarily equate to overseas investors net selling an equivalent amount of U.S. Treasuries. The U.S. Treasury market itself performed weakly in July. Affected by the Iran war heightening inflation risks and persistent concerns over the U.S. fiscal deficit, investors became more cautious toward long-term bonds. The Bloomberg U.S. Treasury Index fell by more than 1% that month, and falling bond prices also dragged down the book value of overseas holdings. Japan's holdings fell to $1.1 trillion; currency intervention may have driven it to reduce overseas assets. As the largest overseas holder of U.S. Treasuries, Japan's holdings decreased by $12.8 billion in July to about $1.1 trillion. It is worth noting that Japanese authorities took action in July to support the yen. More recent data subsequently released by Japan's Ministry of Finance indicated that Tokyo may have sold some overseas securities to raise funds needed for foreign exchange intervention. U.S. Treasury Secretary Bessent also linked Japan's U.S. Treasury holdings to currency intervention during a hearing in the U.S. House of Representatives on Tuesday. He said that the rare joint market intervention by the United States and Japan on July 31 to buy yen had one potential benefit: reducing Japan's need to sell U.S. assets to support its currency. Bessent said: "A stronger yen means the Japanese government does not need to sell U.S. assets to finance foreign exchange intervention." In other words, if the yen continues to face depreciation pressure, Japanese authorities may need to use some overseas securities assets to obtain the dollar funds needed to intervene in the market; if the United States helps buy yen, it may to some extent ease the pressure on Japan to sell U.S. assets to raise dollars. China's holdings fell by $15.4 billion; the UK bucked the trend and increased its holdings to nearly $1 trillion. U.S. Treasury Department data showed that China's holdings of U.S. Treasuries decreased by $15.4 billion in July to $618 billion. In sharp contrast to the reductions by Japan and China, the UK substantially increased its U.S. Treasury holdings in July. As the second-largest overseas holder of U.S. Treasuries, the UK's holdings rose by $58.4 billion that month to $998.3 billion, just a step away from $1 trillion. However, the UK financial market has a massive international custody and financial intermediation business, so its U.S. Treasury holdings data do not necessarily fully represent the final asset allocation of domestic UK investors. Holdings by France and Canada fell markedly. Looking at changes among major overseas holders in July, France and Canada were important sources of the overall decline in foreign U.S. Treasury holdings. France's holdings of U.S. Treasuries fell sharply by $41.5 billion that month to $348.4 billion; Canada's holdings decreased by $33.3 billion to $426.3 billion. France and Canada alone accounted for a combined decline of $74.8 billion, exceeding the $50.4 billion drop in total overseas investors' U.S. Treasury holdings that month, while the UK's large increase offset part of the decline. Overall, changes in U.S. Treasury holdings among major overseas investors in July showed clear divergence: Japan, China, France, and Canada reduced their holdings, while the UK increased its holdings substantially. This change occurred as the U.S. Treasury market faced multiple pressures. Energy price and inflation risks brought by the Iran war, as well as the U.S. fiscal deficit problem, both led investors to reassess the risk-return profile of holding U.S. Treasuries for the long term. At the same time, Japan's foreign exchange intervention to stabilize the yen also brought its enormous U.S. asset reserves under market scrutiny. However, because the U.S. Treasury Department's holdings statistics are also affected by factors such as actual transactions, asset price changes, and changes in custody locations, single-month data cannot simply be interpreted as foreign investors comprehensively withdrawing from U.S. Treasuries. Subsequent changes in U.S. Treasury allocation by overseas official and private investors will remain an important indicator for observing global confidence in the outlook for U.S. fiscal conditions and interest rates.