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Foreign Holdings of U.S. Government Debt Fall by Most Since 2017

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11/19/2019 | 01:34pm EST

By Daniel Kruger

Holdings of U.S. government debt by overseas investors declined the most in almost two years in September as yields on Treasurys climbed from near-record lows.

Foreign holdings of Treasury debt declined 1.2% to $6.78 trillion, the biggest drop since the end of 2017, according to data released by the Treasury Department late Monday. Demand for the debt from foreign investors at September's auctions of new Treasurys was the lowest since before the financial crisis, according to separate data from the agency.

The yield on the benchmark 10-year Treasury note was a recent 1.793%, according to Tradeweb, compared with 1.808% Monday. It reached a multiyear low of 1.456% in early September.

"Foreign ownership of Treasurys hasn't kept pace with issuance," said Jon Hill, a government debt strategist at BMO Capital Markets.

The decline in holdings was led by foreign central banks. Officials in some emerging markets could have been selling U.S. assets to defend their currencies against the dollar, Mr. Hill said.

Foreign holdings of U.S. government debt are still rising at the fastest pace in years amid demand from private investors who have purchased the securities without hedging the risk of buying the debt in U.S. dollars.

Yields on 10-year Treasurys have been more than 2 percentage points higher than German debt of the same maturity throughout the year. That has made U.S. debt increasingly attractive as yields have fallen to record lows throughout Europe.

The recent jump in Treasury yields, which rise when bond prices fall, was matched by an increase in yields on sovereign debt in Europe. That carried yields up from recent record lows below zero reached after investors' worries about slowing global growth pushed them toward the relative safety of government debt.

The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, reached a multiyear high at the end of September. It traded at a recent 90.75, down 1.6% from its Sept. 30 high, and less than 0.1% from Monday.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
HUDSON'S BAY COMPANY -0.38% 9.205 Delayed Quote.27.71%
US DOLLAR INDEX -0.28% 97.38 End-of-day quote.0.72%
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