The Waning Appeal of US Treasuries for Global Sovereigns

According to recent Treasury International Capital (TIC) data, US Treasury securities have lost their luster among foreign governments and central banks. By July, these official holdings dipped to a market value of $3.77 trillion—a figure strikingly similar to where they stood back in 2012.

However, the context has changed drastically. While the dollar amount is similar to 2012, the total volume of outstanding Treasury securities has roughly tripled since then (per Dallas Fed data).

The Collapse of Official Market Share

The decline is most evident when looking at the percentage of marketable Treasuries held by "foreign officials."

$\text{Official Share} = \frac{\text{Foreign Official Holdings}}{\text{Total Marketable Treasuries}}$

• Peak (2007–2009): $> 38\%$
• 2012: $34\%$
• July (Current): $12.8\%$ $\rightarrow$ The lowest level since 1993.

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Three Critical Dimensions of the Shift

The current landscape can be broken down into three primary trends:

1. Decreased Appetite: Foreign central banks and governments find Treasuries increasingly unattractive.
2. Reduced Reliance: The US government is no longer as dependent on these official foreign entities to fund its sustainable massive, out-of-control deficits.
3. Increased Opacity: Financing has shifted toward "opaque" foreign financial centers, which often serve as shells for US-based entities.

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The Illusion of "Foreign Private" Holdings

In July, total foreign holdings (official + private) fell by $50 billion to **$9.25 trillion**. While private holdings have historically pushed total numbers higher, these aren't always "foreign" in the traditional sense.

The "Hot Money" and Tax Havens

A significant portion of these holdings consists of:

• US Hedge Funds: Domiciled in places like the Cayman Islands to execute the Treasury basis trade. This involves buying Treasuries (estimated at nearly $2 trillion) and selling futures against them.

  Warning: This highly leveraged "hot money" is volatile; it famously caused the Treasury market to seize up in March 2020, a scenario the Fed still fears.

• US Corporations: Entities in Ireland or other low-tax jurisdictions used to park foreign profits to avoid US repatriation taxes. Apple was a primary example highlighted during a 2013 Senate probe.

Because these entities are registered abroad, they are counted as "foreign private," even if the capital is American. Despite this, their share of marketable Treasuries fell to a near-record low of 31.9% in July.

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Regional Breakdown: Who is Selling?

🇯🇵 Japan: The Yen Defense

Japan reduced its holdings by $13 billion** in July, contributing to a total reduction of **$135 billion since February.

• The Strategy: Japan is selling Treasuries to acquire USD, which it then sells to buy Yen in an attempt to stop the currency's collapse.
• The Profit: Because they bought these securities when the Yen was much stronger, they are making massive profits in Yen terms.
• The Impact: Since many sold securities were near maturity, the losses in USD terms due to rising yields were negligible.

🇨🇳 China & Hong Kong: The Long Exit

Since 2015, Mainland China and Hong Kong have been consistently offloading Treasuries.

• July Reduction: $13 billion.
• 12-Month Total: $67 billion reduction.
• Current Share: A negligible 3.0% of marketable Treasuries.

🏦 The Financial Hubs

The seven largest financial centers now hold $3.28 trillion, representing 11% of all marketable Treasuries and a staggering 35% of all foreign holdings.

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Other Notable Movements

• Canada: Holdings plunged $33 billion in July to$426 billion. This "yoyo" effect suggests data collection noise rather than a strategic shift.
• France: Dropped $42 billion from record highs to$348 billion; the French system mirrors financial center behavior.
• Taiwan: Decreased by $6 billion to$296 billion.
• Norway: Increased by $4 billion to$207 billion. This is driven by the Government Pension Fund Global (the "Oil Fund"), which manages $2.3 trillion.