Private investors sold $29.1B of U.S. Treasuries in July

Treasury International Capital data for July show private foreign investors sold $29.1 billion of U.S. Treasury notes and bonds while foreign official institutions increased purchases of longer-dated securities. At the same time, foreign residents bought a net $38.8 billion of Treasury bills after selling $29.0 billion in June.

The composition of flows was uneven. Private foreign investors bought about $45 billion of Treasury bills but sold $29.1 billion of notes and bonds. Foreign official institutions sold about $6.3 billion of bills and bought roughly $25.5 billion of notes and bonds, offsetting most private selling in longer maturities and leaving combined notes-and-bonds flows slightly negative for the month.

The headline TIC inflow for July did not translate into a broad increase in long-term foreign demand for U.S. government debt. After U.S. purchases of foreign securities and other accounting adjustments, net foreign acquisition of all long-term securities was negative $27.9 billion in July, according to Treasury figures.

Market yields reflected the split between short- and long-term demand. During July the 10-year Treasury yield rose from about 4.48% on the first trading day to roughly 4.75% by month end, and the 30-year yield climbed from about 4.97% to 5.27%. By Sept. 16 the yield curve showed a one-month rate near 3.96% and a 10-year yield around 5.01%, a gap of about 1.05 percentage points.

Bills mature within a year, notes cover two- to 10-year maturities and bonds extend 20 to 30 years. The July flows indicated a shift of private foreign demand toward short-term, cash-like Treasury bills rather than longer-duration notes and bonds, as classified in the TIC tables.

Treasury cautions that its monthly long-term holdings data are primarily custody-based, which can obscure the ultimate country of an asset owner. The TIC flow table is not seasonally adjusted and excludes direct investment, the Treasury says.

Federal Reserve research cited in the release notes that foreign demand can influence Treasury term premiums but that the relationship is endogenous and one month’s flows do not map directly into a specific yield move. The Fed’s financial conditions framework treats Treasury yields alongside private borrowing rates, equities and the dollar and notes that higher risk-free returns increase the opportunity cost of holding non-yielding assets while tighter credit can reduce capital available for risk assets.

Bitcoin has moved in response to changes in long-term yields this year. Market participants say they will watch upcoming TIC reports and Treasury yields for signs that private foreign accounts are resuming purchases of longer-dated U.S. debt.