Other countries just bought more US government debt in May than they held the month before. This overall rise followed a 0.1% gain in the Bloomberg US Treasury index during May, reversing a small decline the month before.
Over the past decade, foreign holdings of U.S. Treasuries have grown from roughly $6 trillion to over $9 trillion, driven by the dollar's dominance and global trade imbalances. Periods of market stress, such as the 2008 financial crisis and the 2020 pandemic, caused temporary declines, but the long-term trajectory has been upward as central banks accumulate reserves. The May data reinforces that even when major holders like Japan sell for currency intervention, other buyers step in, maintaining overall demand.
This pattern of foreign investment in Treasuries has seen relatively steady growth over the past decade, with occasional dips during periods of market stress or currency interventions.
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US government bonds continue to attract global investors largely because the dollar remains the world's primary reserve currency and American assets are viewed as a safe haven during geopolitical uncertainty. Central banks and sovereign wealth funds often allocate a significant portion of their reserves to Treasuries, providing liquidity and stability. The near-record holdings also indicate that despite occasional sales for currency intervention, the overall trend toward accumulating US debt remains intact.
The amount of US government debt held by overseas investors has fluctuated over the past several years, shaped by shifts in currency markets, trade dynamics, and evolving interest-rate forecasts. Mark Cabana, head of US interest rate strategy at Bank of America, said, "The near-record level in May underscores continued demand for US Treasuries as a safe asset." Even as occasional selling by major holders like Japan reflects specific policy needs, the overall near-record level highlights persistent interest.
This persistent appetite for US government debt highlights its status as the world's preeminent safe‑haven asset. Even as Japan sold off Treasuries to defend the yen, other nations stepped in to increase their positions, pushing aggregate holdings to near‑record levels. The ongoing demand for Treasuries underscores the stability of the US financial system and the dollar's central role in international trade and finance. The near‑record total also reflects ongoing recycling of trade surpluses by countries such as China and commodity exporters.
Not every country loaded up. The reason goes back to something Japan has been doing this year. Japanese authorities had been selling dollars and buying yen as part of an effort to prop up their own currency. That kind of foreign-exchange intervention almost certainly involved selling some US Treasuries to raise the dollars they needed.
When a country needs to buy its own currency in large amounts, it has to get the dollars from somewhere. For Japan, that somewhere was Uncle Sam's debt.
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