Foreign Buyers Boost U.S. Treasury Purchases by 22% Despite Tariff Concerns

Despite recent tariff measures implemented by U.S. President Trump, which have raised concerns about retaliatory selling of U.S. Treasuries by foreign investors, the latest data from the U.S. Treasury Department indicates that these fears have not materialized. According to the Treasury Department's "Auction Allocation Report" released on Wednesday, foreign and international buyers increased their purchases of U.S. Treasuries by 22% in the first half of April compared to the first half of March. This category includes foreign private investors and foreign central banks, providing the latest dynamics of foreign participation in the U.S. Treasury market.

While this report is not typically closely monitored by the market, given the recent announcement by Trump of "reciprocal tariffs" and the subsequent decline in long-term Treasury prices and rise in yields, there has been a heightened focus on this report. The data shows that as of now, the 10-year Treasury yield has decreased by 0.141 percentage points in April compared to the previous month (bond prices and yields have an inverse relationship).

The report reveals that in the April auction of 10-year Treasuries, foreign buyers purchased $72 billion, significantly higher than the $46.4 billion in March, representing a more than 50% increase. The auction of 30-year Treasuries also saw a notable increase. Although the auction of 3-year Treasuries was somewhat lackluster, the overall strong demand for 10-year and 30-year Treasuries compensated for this.

This data supports the statement made by Treasury Secretary Steven Mnuchin last week, who noted that "foreign competition is intensifying" and that foreign institutions are becoming more active in Treasury auctions. The report covers Treasury auctions with remaining maturities of over one year as of April 15. The Treasury Department typically releases this type of allocation data every two weeks. Compared to other publicly available data, the auction allocation report provides a more accurate reflection of the participation of various investors in the auctions, including U.S. pension funds, mutual funds, and foreign buyers.

In contrast, the weekly auction results, which include the category of "indirect bidders," are often used to gauge foreign investor activity. However, this category has a broader scope and does not fully represent the actual participation of foreign investors. As the Treasury Department points out, "the percentage of indirect bids should be used cautiously as an indicator of foreign participation, as its correlation with the actual foreign bidding percentage is limited and unstable."

Data shows that in March, foreign buyers purchased 9.1% of the total issuance of 2-30 year Treasuries, which is consistent with the levels of the previous two months. However, other foreign investment data presents a more complex picture. The Treasury International Capital (TIC) report shows that in February, Japan, the largest creditor of the U.S., net purchased $317 billion in long-term Treasuries, while China, the second-largest creditor, net sold $48 billion. Although this data is released with a delay, it is still considered the best tool for tracking foreign investment in Treasuries.

Currently, there is heightened market attention on foreign investment in Treasuries, partly due to the significant amount of U.S. debt that will mature in the coming year. The Peterson Foundation estimates that the U.S. will have over $9 trillion in Treasuries maturing in the next year, posing a major challenge to the market's funding needs. Additionally, large-scale selling of Treasuries may not align with the interests of foreign central banks. Data shows that approximately 88% of global foreign exchange transactions involve the U.S. dollar. For example, China's major financial institutions hold at least $3 trillion in dollar-denominated assets. Many global interest rates are pegged to U.S. Treasury yields, and any action that harms the value of Treasuries would indirectly harm the assets of these holders.