Foreign holdings of US Treasuries dip in October; China cuts exposure

NEW YORK, Dec 18 (Reuters) - Foreign holdings of U.S. Treasuries fell in October, data from the Treasury Department showed on Thursday, declining for a second straight month, as market sentiment soured in the wake of the longest-ever government shutdown in U.S. history.

Holdings of U.S. Treasuries slid to $9.243 trillion in October, down from $9.248 trillion in the previous month, after hitting a record $9.262 trillion in August. However, compared with a year earlier, Treasuries owned by foreigners were up 6.3% in October.

The decline in Treasury holdings was led by China, as the country's stash of U.S. government debt fell to $688.7 billion, the lowest since October 2008, when holdings tumbled to $684.1 billion. China is the third-largest non-U.S. owner of Treasuries, but its holdings have declined by more than 9% since the beginning of the year.

Canada, the fifth-largest buyer of Treasuries, also reduced its holdings in October to $419.1 billion, down 12% from $476 billion in September.

Japan remained the biggest non-U.S. holder of Treasuries with $1.2 trillion in October, its biggest holdings since July 2022, when its stash of U.S. government debt hit $1.231 trillion. Japan's stock of Treasuries have increased for 10 straight months.

The UK, the second-largest owner of Treasuries, also raised its holdings to $877.9 billion. The UK is widely viewed as a custody country, generally a proxy for hedge fund investments. Other countries used by hedge funds for custody services include the Cayman Islands and the Bahamas.

U.S. benchmark 10-year Treasury yields started November with a yield of 4.106%, ending little changed at 4.101% by the end of that month.

On a transaction basis, foreigners sold Treasuries in October, with outflows of $61.2 billion, from inflows of $25.1 billion in September. In May, there were foreign inflows of $147.4 billion in Treasuries, the largest since August 2022.

The U.S. government shuttered on October 1, staying closed for a record 43 days. Analysts said the closure likely undermined market sentiment.

Foreign investors, meanwhile, bought $47.4 billion in U.S. stocks, compared with $132.9 billion in inflows in September.

Data also showed net capital outflow of $37.3 billion out of the United States, after posting inflows of $184.3 billion in September.