Foreign Central Bank Demand for Treasuries Ebbs With Bill Supply

The sharp decline in Treasury holdings of foreign central banks from record highs reached in March -- even as yields climbed -- may sound a false alarm about demand. Both the first-quarter increase and the second-quarter drop track the trend in Treasury bill supply.

“The very robust increase in Fed custody holdings since January and the decline over the last month is in part driven by the recent change in supply of the Treasury bill market,” Steven Zeng, a rates strategist at Deutsche Bank Securities, said in a May 11 note.