The latest data from the U.S. Treasury Department shows that foreign investors reduced their U.S. Treasury holdings in December. Japan and China, the two largest foreign holders, cut their Treasury significantly.
The total U.S. Treasury holdings fell to $8.513 trillion in December. This marked a decrease from $8.633 trillion in November and $8.679 trillion in September. Japan remained the largest foreign holder but reduced its investments from $1.087 trillion to $1.060 trillion. Meanwhile, China cut its holdings from $768.6 billion to $759 billion.
The decline in holdings coincided with a surge in U.S. Treasury yields. Higher yields often indicate expectations of strong economic growth and potential inflation risks. December’s yield increase was influenced by market speculation regarding future policies. Tariffs and immigration reforms proposed by the Trump administration also contributed to the uncertainty.
Federal Reserve officials adjusted their expectations for interest rates during their December meeting. They signaled that fewer interest rate cuts would occur in 2025. The primary reason for this shift was concern over persistent inflation.
The Federal Reserve’s stance plays a crucial role in shaping investor sentiment. Higher interest rates can make U.S. Treasury securities less attractive, prompting major holders like Japan and China to reduce their investments. If this trend continues, it could influence global bond markets and currency exchange rates.
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Japan and China reduced their Treasury holdings in December amid rising yields. Learn how this impacts global markets.
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