Japan, UK drive rise in foreign US Treasury holdings in January, data shows

By Gertrude Chavez-Dreyfuss

NEW YORK, March 18 (Reuters) - Foreign holdings of U.S. Treasuries rose in January, data from the Treasury Department showed on Wednesday, recovering from a decline in December as investors returned to the market amid generally elevated yields and shifting expectations for Federal Reserve policy.

Holdings of U.S. Treasuries grew to $9.305 trillion in January from $9.271 trillion in the previous month. Compared with a year earlier, Treasuries owned by foreigners were up 8%, underscoring sustained overseas demand as Treasury issuance has expanded to fund rising U.S. deficits.

The increase in holdings was led by Japan, the United Kingdom, and China, the three largest foreign holders of U.S. government debt.

JAPAN'S BIGGEST HOLDINGS SINCE JULY 2022

Japan remained the biggest non-U.S. holder of Treasuries with $1.225 trillion in January, its biggest holdings since July 2022 when its stash of U.S. government debt hit $1.231 trillion. Japan's Treasuries have increased in 12 of the last 13 months, reflecting steady demand from domestic investors seeking higher overseas yields as the Bank of Japan has been slow to normalize policy.

The UK, the second-largest owner of Treasuries, also raised its holdings to $895.3 billion, up 3.4% from the December level. The UK is widely viewed as a major custody hub, often serving as a proxy for hedge fund investment flows. Hedge funds also use other custody jurisdictions, including the Cayman Islands and the Bahamas.

China, the third-biggest owner of Treasuries, raised its holdings to $694.4 billion in January, from $683.5 billion in December.

China's cache of Treasuries has declined by 9% since the beginning of 2025, reflecting a longer-term diversification away from U.S. assets.

U.S. benchmark 10-year Treasury yields US10YT=RR started January with a yield of 4.189%, ending the month at 4.227%, keeping yields near levels that many foreign investors view as attractive on a currency-hedged basis, particularly compared with returns available in Europe and Japan.

On a transaction basis, foreigners bought Treasuries in January, with inflows into the sector of $49.9 billion, from outflows of $27 billion.

At the same time, foreign investors shed $8.3 billion in U.S. stocks, compared with hefty purchases of $121 billion in December, signaling a rotation back to fixed income.

Overall, the data also showed net capital outflows of $25 billion in January, after posting inflows of $113.9 billion in December, highlighting month-to-month volatility in cross-border investment flows as markets adjust to evolving interest rate expectations and global risk conditions.