The Financial Associated Press reported on December 20 (Editor: Xiaoxiang) that on Thursday local time (December 19), the U.S. Treasury Department released the International Capital Flow Report (TIC) for October 2024. The report indicated that in October, the scale of U.S. Treasury bonds held by foreign investors ended a five-month growth streak. Led by Japan and China, up to seven of the top ten U.S. "creditors" chose to reduce their holdings that month. At the same time, China's holdings of U.S. bonds further reached a new low since 2009.

Data from the U.S. Treasury Department shows that China, the second-largest overseas "creditor" of the USA, continued to reduce its U.S. bond holdings in October — the holdings decreased by 11.9 billion USD month-on-month, bringing the total holdings down to 760.1 billion USD. This also marks China's fourth consecutive month of reducing its U.S. bond holdings.

Since April 2022, China's U.S. bond holdings have remained below 1 trillion USD. This recent reduction has brought China's U.S. bond holdings below the low of 769.6 billion USD from October last year, further setting a new low since February 2009. In February 2009, China's U.S. bond holdings were 744.2 billion USD.

Data released earlier this month by China's State Administration of Foreign Exchange indicated that by the end of November, China's foreign exchange reserves were 3,265.9 billion USD, an increase of 4.8 billion USD from the end of October, with a growth rate of 0.15%. The National Foreign Exchange Bureau stated that the increase in foreign exchange reserves was due to the comprehensive effect of factors such as exchange rate conversions and asset price changes. The economy's recovery momentum has strengthened, and market confidence has improved, which will continue to support the basic stability of foreign exchange reserves.

Notably, shortly after continuing to reduce U.S. bonds in October, the People's Bank of China increased its Gold reserves again in November, with the end-of-month Gold reserves amounting to 72.96 million ounces, an increase of 0.16 million ounces from the previous month.

Apart from China, Japan also reduced its holdings of U.S. Treasury bonds by 20.6 billion USD in October compared to September, bringing it down to 1.1027 trillion USD. This is Japan's sixth reduction in U.S. bonds over the past seven months.

Since surpassing China in June 2019, Japan has remained the largest overseas holder of US Treasury bonds. The consecutive reductions in US Treasury holdings by Japan in recent months are evidently linked to its interventions in the forex market to support the yen. Due to the threat of intervention by Japanese monetary authorities to support the yen, market participants have been closely monitoring Japan's holdings of US Treasury bonds as USD reserves.

The Japanese authorities intervened by selling USD and buying yen at the end of April and in May, and further intervened again in July, with some of the funds possibly coming from Japan's sale of US Treasury bond investments. As we enter the fourth quarter, with the USD continuing to rise in the backdrop of Trump's victory and the Federal Reserve's intention to slow down rate cuts, the pressure for yen depreciation is clearly still present.

Is the wave of US Treasury bond shareholding reduction starting to spread globally?

Overall, one of the biggest highlights of the latest TIC report from the US Treasury is undoubtedly that the wave of US Treasury bond reductions has begun to spread. Unlike in September, when only China and Japan reduced their holdings among the top ten overseas "creditors" of the USA, this time as many as seven "creditors" chose to reduce their holdings in October.

Among them, the United Kingdom, the third-largest overseas "creditor" of the USA, held 746 billion USD in US Treasury bonds in October, with a monthly reduction of 18.4 billion USD. Currently, the UK's US Treasury bond holdings are getting closer to those of China.

In addition, the Cayman Islands, Canada, Belgium, and Swiss Franc also reduced their US Treasury bonds during the same month. Among the other top ten "creditors," Luxembourg, Ireland, and France chose to increase their holdings.

Overall, in October, the scale of US Treasury bonds held by foreign investors decreased from 8.6729 trillion USD in September to 8.5955 trillion USD, ending five consecutive months of growth.

The shift in momentum is clearly related to the rare consecutive declines in US Treasury bond prices following the Federal Reserve's rate cuts. Charlie Bilello, Chief Market Strategist at Creative Planning, pointed out that it has been three months since the Federal Reserve's first rate cut, but the yield on the 10-year Treasury bonds has surged by about 86 basis points. This is starkly different from the behavior at the beginning of previous rate cut cycles, when the yields either fell or remained basically unchanged.

October was precisely a phase when the selling pressure on US Treasury bonds was gradually deepening. Traders were then betting that Trump would win the US presidential election and implement growth-promoting policies while introducing new tariffs, and analysts noted that this could lead to a rebound in US prices and hinder the Federal Reserve's rate-cutting process next year.