How Japan, China helped drive Treasury yields lower in December

By Vivien Lou Chen

Japan, China and the U.K boosted their Treasury holdings at the end of 2023, helping set up a borrowing blitz by U.S. companies.

The top three foreign holders of U.S. government debt -Japan, China and the U.K.- boosted their holdings in the final month of 2023, and were among the buyers that helped drive Treasury yields lower at the end of the fourth quarter.Japan boosted its holdings to $1.138 trillion last December, China increased them to $816.3 billion, and the U.K. raised its holdings to $753.7 billion, according to government data. The sum total of all net foreign acquisitions of long-term securities, short-term securities and banking flows was $139.8 billion, the Treasury Department said on Thursday. Foreign buyers were stepping up to the plate during a time when traders were growing more convinced inflation could keep falling into 2024 and that Federal Reserve officials would be able to cut interest rates. Treasury yields finished lower for the month of December, with the policy-sensitive 2-year rate BX:TMUBMUSD02Y posting its biggest monthly decline since March of last year. On a quarterly basis, yields also posted their largest drops since March 2020.

Lower 10-year Treasury yields BX:TMUBMUSD10Y, a peg for financing much of the U.S. economy, helped set up a record corporate borrowing blitz in January by major corporations and partially thawed lending on commercial real estate.

According to a team at JPMorgan Chase & Co. (JPM), foreign investors, on net, purchased $40 billion of long-term Treasurys in the final month of last year.

-Vivien Lou Chen

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02-16-24 1138ET

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