In September, the US debt held by Japan and China both fell by more than 27 billion US dollars, while the Cayman Islands and Saudi Arabia each increased by more than 5 billion US dollars. Japan's US debt holdings were reduced for the first time in four months and returned to March levels, while China sold US debt for the sixth month in a row, and its total holdings hit a 14-year low for four consecutive months.

On Thursday, November 16, the International Capital Flows Report (TIC) released by the US Treasury Department showed that Japan continued to be the largest overseas holder of US Treasury bonds in September of this year, but its holdings of US Treasury bonds fell by 28.5 billion US dollars over the previous month to about 1.09 trillion US dollars. This is the first time in four months that it has reduced its holdings of US debt, breaking away from the four-month total volume level created by the previous value in August and returning to the level of March holdings.

Mainland China is still the second largest overseas holder of US debt. In September, US debt holdings fell by 27.3 billion US dollars, to sell US debt holdings for the sixth consecutive month. The total volume reached 778.1 billion US dollars, hitting a 14-year low since May 2009 for four consecutive months. At that time, the level of debt holdings was 776.4 billion US dollars.

Historical data shows that since June 2019, Japan's US debt holdings have surpassed China for the first time since May 2017, and have been promoted to the “largest overseas creditor” of the US.

Meanwhile, Japan reduced its holdings of US debt by 30.4 billion US dollars in May of this year, marking the largest monthly reduction in holdings since October last year. Mainland China's US debt holdings have been below 1 trillion US dollars since April of last year. There was an increase in holdings in March and April of this year. The scale of the reduction in holdings in September was double that of the average monthly holdings reduction of more than 10 billion US dollars from May to August.

TIC data also shows that among the top ten countries and regions with the largest holdings of US debt, only four increased their holdings of US debt in September. Luxembourg, which ranked fourth in total holdings, increased its holdings by 7.8 billion US dollars, the biggest increase, while the United Kingdom, which ranked third in total holdings, reduced its holdings by 29.2 billion US dollars.

Meanwhile, US debt held by the Cayman Islands, which represents interest in hedge funds, increased by 5.5 billion US dollars to 314.8 billion US dollars in September. In order to increase its holdings for the fourth month in a row, Belgium slightly increased its holdings by 300 million US dollars to 317 billion US dollars. In addition to the top ten “creditors” list, Saudi Arabia's US debt holdings in September increased by 5.1 billion US dollars to 117.1 billion US dollars.

Overall, the total amount of US government debt held overseas fell by 101.6 billion US dollars in September to a total of 7.61 trillion US dollars, the lowest since May this year.

The total amount of TIC outflow from foreign cross-border investment to the US in September was 67.4 billion US dollars, of which the net outflow of TIC from the foreign private sector was 62.1 billion US dollars, and the net outflow of foreign official sectors was 5.3 billion US dollars. The total overseas sell-off of the US long-term securities portfolio was $1.7 billion. TIC data for October this year will be released on December 19.

This is in stark contrast to the trend of overseas investment capital flowing back into the US asset market for three consecutive months after the US Congress finally reached an agreement to resolve the debt ceiling crisis in June of this year.

Earlier, some analysts thought that China might be selling US debt to support the RMB. There are also commentators saying that the number of US Treasury bonds held by China seems to be declining; in fact, it is shifting to institutional bonds with higher yields.

At the end of September, China's foreign exchange reserves fell from US$31.61 trillion to US$315.1 million, a decrease of US$45 billion or 1.42% from the end of August. After two months of continuous growth, China's foreign exchange reserves fell for two consecutive months. According to the State Administration of Foreign Exchange, the US dollar index rose in September this year, global financial asset prices fell overall, and the size of foreign exchange reserves declined during that month due to a combination of factors such as exchange rate conversion and changes in asset prices.

At the same time as foreign exchange reserves declined, the People's Bank of China continued to increase its gold holdings. At the end of September, gold reserves were 70.46 million ounces, an increase of 840,000 ounces over the previous month. This is also the 11th month in a row that the PBOC's gold reserves have increased, in line with current international trends.

The US TIC Report is international capital flow data published monthly by the US Treasury Department, including the trend of foreign purchases and sales of US Treasury bonds, government bonds, corporate bonds, and corporate stocks to measure foreign demand for US debt and assets.

The changes in major asset classes in September of this year are: the US dollar index DXY rose 2.5%, rising successively above the 104 to 106 mark. The yen fell 2.6% against the US dollar and successively fell below the 146-149 mark. The offshore renminbi fell 0.3% or 200 points against the US dollar, falling below the 7.28 and 7.29 yuan mark. The benchmark 10-year US Treasury yield rose 47 basis points, up 4.58% from 4.1060%.