Foreign investors raised their stake in U.S. Treasury debt to a record $5.83 trillion in January from $5.80 trillion in December as turmoil in emerging markets fueled demand for haven assets.
China, the largest foreign lender to the U.S., increased its position in Treasuries in January by $3.5 billion to $1.27 trillion while Japan, the second largest overseas lender to the U.S., boosted its holdings $18.9 billion to $1.2 trillion, Treasury data released yesterday show. Japan’s increase was the most since September.
Treasuries gained 1.8 percent in January, the most since May 2012, according to the Bloomberg U.S. Treasury Bond Index, with 10-year note yields falling to a 12-week low of 2.64 percent amid signs of slowing growth in China’s economy, the world’s second largest. Foreign investors held about 49 percent of the $11.8 trillion in outstanding marketable Treasuries as of January.
“It’s a surprise for a lot of street participants because everyone’s still bearish on the market,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “Globally, there’s still too many imbalances. The tide is turning in China -- people aren’t sure what the effect’s going to be -- and Europe’s dead in the water.”
Russia cut its stake in U.S. government debt by $6.8 billion to $131.8 billion, according to Treasury data. It was the third consecutive reduction, with holdings down 12.1 percent from October. Belgium raised its stake in Treasuries by $53.5 billion to $310.3 billion, the third-largest foreign allotment.
The MSCI Emerging Markets Index of stocks lost 6.6 percent in January.
China’s economy will expand 7.45 percent this year, which would be the slowest pace in 24 years, according to economists surveyed by Bloomberg. Central banks from South Africa and Turkey to Argentina raised interest rates in January to prop up their currencies as investors exited riskier assets in favor of havens.