Japan, private holdings of Treasuries continue to rise

Japan expanded its holdings of U.S. Treasuries in October by more than $20 billion, the largest monthly increase for any country, data from the Treasury department showed, as Japanese investors continued to hunt for positive yield outside their own negative-yielding bonds.

Japan's Treasury holdings grew to $1.168 trillion in October, from $1.145 trillion the previous month, making it the largest non-U.S. holder of U.S. government debt for a fifth straight month. The same trend could be seen in private sector buying of Treasuries, which has seen inflows from that group for five consecutive months.

"The continued growth in foreign private holdings is constructive for the Treasury market in the medium run," said Jon Hill, vice president, rates strategy, at BMO Capital Markets in New York. "The growth in Japanese holdings is also consistent with the rumored uptick in unhedged buying from that investor base," he added, suggesting that Japanese investors just wanted to take advantage of the positive U.S. yield.

That said, foreign holdings of U.S. Treasuries still fell for a third consecutive month in October, with outflows hitting $16.758 billion in the month, compared with an outflow of $34.324 billion in September. The outflow was led by foreign official investors such as central banks, to the tune of $41.53 billion, in October. Foreign official investors have sold Treasuries for 14 straight months.

BMO's Hill said the selling was indicative of foreign official investors' move to defend their weakening currencies against a strong U.S. dollar.

Overall, foreign official holdings of Treasuries declined to $4.123 trillion in October, from $4.151 trillion in September, data showed.