The Treasury Department released data indicating that foreign holdings of U.S. Treasuries decreased in December, with Japan and China, the two largest foreign holders, reducing their investments, according to a Reuters report.
The overall holdings of U.S. Treasuries dropped to $8.513 trillion in December, down from $8.633 trillion in November, and a decrease from the $8.679 trillion recorded in September.
Japan, which remains the largest foreign holder of U.S. Treasury securities, saw its holdings decrease to $1.060 trillion from $1.087 trillion the previous month. Following Japan, China, the second-largest holder, reduced its Treasury holdings to $759 billion from $768.6 billion in November.
The decline in Treasury holdings by Japan and China comes amid a surge in U.S. Treasury yields in December. The increase in yields was driven by expectations of higher economic growth and the potential for a resurgence in inflation. Market participants were assessing the possible effects of tariffs and immigration reforms proposed by the Donald Trump administration following the presidential election in November.
Furthermore, Federal Reserve policymakers indicated a shift in their outlook at the December meeting of the U.S. central bank. They noted that they anticipate fewer interest rate cuts in 2025, attributing this change to inflation concerns.
The Federal Reserve’s stance on interest rates is a critical factor for investors as it influences the attractiveness of holding government debt.
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