Foreign Demand for U.S. Treasuries Hits Record $9.13 Trillion in June

Foreign ownership of U.S. government debt climbed to an all-time high in June, underscoring continued global reliance on Treasuries as the cornerstone of the financial system even as questions mount about long-term demand. The latest Treasury International Capital data showed overseas investors held $9.13 trillion in Treasuries, nearly $1 trillion more than a year earlier and the fourth consecutive month above the $9 trillion threshold.

The record reflects both safe-haven flows into U.S. debt and structural forces, such as demand for dollar-denominated assets from central banks and institutional investors. Yet beneath the headline, the data revealed signs of strain. Net inflows slowed sharply in June, and analysts warn that reduced central bank appetite could create headwinds if fiscal pressures force Washington to issue more debt in the months ahead.

Japan and the UK Step Up as China Pulls Back

Japan extended its position as the largest foreign holder, with Treasury holdings climbing to $1.147 trillion. The UK also increased its exposure, rising to $858.1 billion, while China’s holdings remained flat at $756.4 billion, the lowest level since 2009. The diverging trend underscores a broader reshuffling of foreign demand, with U.S. allies deepening their positions as Beijing remains cautious amid ongoing geopolitical and trade tensions.

The reduction in Chinese participation is part of a longer trend of diversification away from dollar assets. For Washington, this creates both a challenge and an opportunity: while overall demand is still robust, it is increasingly concentrated among a narrower set of partners. Traders are watching whether this concentration raises the risk of sharper market moves if one major holder adjusts its stance.

Net Inflows Lose Momentum

Despite the record total, June saw foreign investors withdraw around $5 billion in Treasuries, following May’s exceptional $147 billion inflow. Long-term securities purchases remained strong at $192.3 billion, but overall net capital inflows tumbled to $77.8 billion, down sharply from $318.1 billion in May. The slowdown points to a more selective investor base, particularly among official institutions, which reduced their participation by more than $60 billion since April.

Private investors, by contrast, maintained strong appetite, suggesting that Treasuries remain attractive in a world of geopolitical uncertainty and uneven growth. Still, with U.S. deficits widening and the Treasury preparing a heavy slate of auctions, sustained foreign demand will be critical to stabilizing yields.

Market Sensitivity Rising

The composition of demand matters as much as the headline total. Analysts at Bank of America have highlighted “cracks” in foreign participation, with central banks stepping back from auctions and reducing their use of the Federal Reserve’s reverse repo facility. Those shifts raise questions about whether private flows alone can absorb the flood of new issuance without higher yields.

The market reaction so far has been muted. Benchmark 10-year yields remain anchored near their three-month average, suggesting investors view Treasuries as a reliable store of value despite fiscal risks. But traders caution that thinner official participation could magnify volatility if inflation surprises or fiscal debates in Washington spark renewed concern about debt sustainability.

Tips for Traders

• Track changes in holdings by major buyers such as Japan, the UK, and China, as shifts here often ripple into currency markets.

• Watch central bank participation in Treasury auctions for early signs of softening safe-haven demand.

• Monitor U.S. fiscal announcements and auction schedules, which may influence yield direction and investor appetite.

• Follow moves in the dollar, as foreign flows into Treasuries and currency strength are closely linked.

• Stay alert to geopolitical tensions, particularly U.S.–China relations, which could alter Beijing’s demand for Treasuries.