Japan topples China as biggest official holder of US Treasuries

Japan has surpassed China as the biggest official holder of US Treasuries as the falling yen exchange rate attracts more dollars into the country and the higher-yielding bonds lure Japanese investors.

China pegs its currency to the dollar, which has recovered strongly this year. At the same time, growth in the Asian giant is slowing, leading it to reinvest more of its foreign earnings domestically, according to Ian Lyngen, a strategist at CRT Capital.

That has caused China's overall holdings of US Treasury bills and bonds to dip to $1.223tn in February, down from $1.273tn in the same month last year, according to the latest Treasury International Capital data.

Japan's total holding of US government debt has edged up from $1.21tn a year ago to $1.224tn.

Japan's Government Pension Investment Fund, one of the biggest in the world, announced last year a far-reaching shift out of domestic bonds and into international equities and fixed income. According to the latest numbers from the Bank of Japan's flow of funds accounts, the country's social security funds overall bought Y2.39tn ($20bn) in foreign securities during the last three months of 2014.

The US Federal Reserve remains the single biggest holder of Treasuries, after snapping up $2.5tn through its quantitative easing programme. The bond-buying has since ended, but repayments and coupons are being reinvested in the market, keeping the Fed's holdings steady.

However, Japan and China are by some distance the biggest foreign holders of Treasuries. Overall international investors like overseas central banks, hedge funds, insurers, asset managers and pension funds held $6.16tn of US government debt at the end of February, compared to $6.21tn in January and $5.89tn in February 2014.

"The recent strength of the dollar and the relative attraction of Treasury yields continue to attract foreign demand," said Mr Lyngen.

The TIC data captures merely the domicile of the investors that own Treasuries. The Caribbean is listed by the Treasury as the third-biggest holder of US government debt, with $350bn in February, which analysts say primarily reflects hedge funds and other asset managers buying via offshore vehicles domiciled there.

Belgium is listed as the fourth-biggest holder of Treasuries, with $345bn, primarily because it is home to Euroclear, a European clearing house that investors use to store assets or clear trades through. Some analysts have suggested that China - and possibly Russia - might be using Euroclear to hold some of their Treasuries.

The TIC data said the holdings of oil exporting countries stood at $296.8bn at the end of February, compared to $243.8bn the same month last year, despite the oil price rout since the summer.

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