Caixin Financial News, September 19th (Editor Xiao Xiang) On Wednesday, September 18th, local time, the US Department of the Treasury released the Treasury International Capital (TIC) report for July 2024. The report shows that the scale of US Treasury bonds held by foreign investors reached a new historical high in July. However, the United States' two largest overseas "creditors", Japan and China, both chose to reduce their holdings.

The report shows that China's holdings of US bonds in July decreased by 3.2 billion US dollars, and the total holdings decreased to 776.5 billion US dollars. Although China had significantly increased its holdings of US bonds by 11.9 billion US dollars in June, marking the largest increase in holdings of US bonds so far this year, this pace clearly did not continue.

Data shows that China has reduced its holdings of US bonds by approximately 39.8 billion US dollars so far this year.

Since April 2022, China's holdings of US Treasury bonds have been consistently below 1 trillion US dollars. After reducing its holdings in March, China's holdings of US Treasury bonds once fell below the previous low of 769.6 billion US dollars in October of last year, reaching a new low since March 2009.

In recent years, China's reduction of US bond holdings has been driven by the need for diversification of foreign exchange reserve assets. Data released by the State Administration of Foreign Exchange (SAFE) last month shows that as of the end of July 2024, China's foreign exchange reserves stood at 3,256.4 billion US dollars, an increase of 34 billion US dollars from the end of June, representing a growth of 1.06%. This marks the seventh consecutive month that China's foreign exchange reserves have stayed above the 3.2 trillion US dollar mark.

At the time, the State Administration of Foreign Exchange (SAFE) stated that in July 2024, the US dollar index fell due to the impact of macroeconomic data, monetary policy, and expectations of major economies, resulting in an overall rise in global financial asset prices. China's overall economic operation remained stable, made progress while maintaining stability, and continued to show improvement, which is conducive to maintaining the basic stability of foreign exchange reserves.

In addition to China, Japan's holdings of US Treasury bonds in July decreased from 1.1177 trillion US dollars in the previous month to 1.1157 trillion US dollars, a decrease of 2 billion US dollars from the previous month, marking the second consecutive month of reaching a new low since October of last year. However, Japan is still the largest overseas holder of US Treasury bonds.

Market participants have been closely monitoring the amount of Japanese government bond holdings this year, as it has once again taken intervention measures to boost the yen. Japanese authorities appear to have conducted intervention operations to sell dollars and buy yen at the end of April and May, and intervened again in July, with some of the funds possibly coming from the sale of Japanese holdings of U.S. Treasury securities.

Official data at the end of July showed that the Japanese authorities intervened in the foreign exchange market to the tune of 5.53 trillion yen that month, pulling the yen back from a 38-year low point.

Overall, the scale of U.S. Treasury holdings by foreign investors in July further increased from the 8.211 trillion U.S. dollars in June to 8.339 trillion U.S. dollars, hitting a new historical high.

Among the top ten major foreign holders of U.S. debt, six countries (Japan, China, the United Kingdom, Belgium, France, and Switzerland) chose to reduce their holdings, while four countries (Luxembourg, the Cayman Islands, Canada, and Ireland) chose to increase them. Of particular note is the significant increase of 58.7 billion U.S. dollars in U.S. bonds by the Cayman Islands in July, far surpassing other regions.

Due to traders' continued high expectations of a Federal Reserve interest rate cut, U.S. bond yields softened in July. The Federal Reserve officially announced a 50 basis point cut in benchmark interest rates early Thursday Beijing time, its first cut since 2020, and the Fed also hinted at further cuts of 50 basis points for the remainder of the year.