The headline foreign holdings decline, Japan, the UK and China all trimming positions, sits alongside a messier picture on the transaction side, where June showed a modest $6.8 billion net inflow on one measure even as ING’s TIC-based read shows a $72 billion net liquidation by foreign holders, underscoring how volatile and measure-dependent this data series has become month to month. ING’s more important point is structural rather than the headline number: real yields resetting toward pre-financial-crisis norms is not necessarily a warning sign, it is a normalisation, but the added issuance pressure from hyperscaler credit and the absence of the usual Trump administration soothing rhetoric around Iran, given the 60-day truce lapsing without resolution, both argue for continued upside pressure on yields and energy prices at the margin. On the eurozone side, shrinking excess reserves and widening ESTR-deposit spreads point to liquidity conditions tightening gradually rather than abruptly, with ING flagging early 2027 as the rough window when banks may be forced to overcome their reluctance to tap ECB operations, a dynamic relevant to Bund spread positioning over the medium term.
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Meanwhile the yield on the US 30 year has risen to its highest since the middle of 2007. Circa 5.321%.
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Earlier:
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Foreign appetite for Treasuries cooled in June and ING doesn’t see the pressure easing soon, pointing to real yields normalising, Iran risk reasserting itself, and issuance from all directions still building.
Summary:
- Foreign holdings of US Treasuries fell to $9.299 trillion in June from $9.371 trillion in May, though holdings were still up 2.3% year on year
- Japan remained the largest non-US holder despite a 2.3% decline to $1.116 trillion, well below its November 2021 peak of $1.325 trillion
- UK holdings, often read as a proxy for hedge fund positioning, fell 1% to $939.9 billion
- China’s holdings dropped 4% to $633.4 billion, the lowest level since September 2008 and down more than 13% year on year
- Overall net capital inflows into the US were $133.5 billion in June, roughly in line with May’s $131.5 billion, with equities drawing $181.4 billion and corporate bonds $35.6 billion
- ING separately cites TIC data showing a $72bn net liquidation of Treasuries by foreigners in June, with Japan, China and some custodial centres as net sellers while Canada, Belgium and Switzerland were net buyers
- ING notes three-month net foreign selling of $56bn against 12-month net buying of $205bn, with total US inflows including equities still strong at $173bn for June
- ING says the US Treasury market carries a heavy tone with further downside likely, citing the absence of the usual administration reassurance on Iran as the 60-day truce lapsed, alongside continued hyperscaler-driven issuance pressure
- ING attributes much of the recent rise in real yields to a return toward pre-financial-crisis norms rather than a genuine dislocation
- In the eurozone, ING flags tightening liquidity as ECB bond portfolios run off, with excess reserves down around €300bn this year to €2.16tn and the overnight ESTR at its widest versus the deposit rate since early 2021
- ING sees banks eventually needing to increase use of ECB liquidity operations, tentatively pointing to early 2027, while noting the ECB’s shrinking bond holdings support longer-run structural cheapening views for Bunds
Foreign holdings of US Treasuries fell in June, led by declines from Japan, the UK and China, according to Treasury Department data, while separately, ING says the heavy tone across the Treasury market has further to run. Total foreign holdings slipped to $9.299 trillion in June from $9.371 trillion in May, though they remained up 2.3% from a year earlier.
Japan stayed the largest non-US holder of Treasuries despite a 2.3% decline to $1.116 trillion, still well short of its November 2021 peak of $1.325 trillion. The UK, the second-largest holder and widely viewed as a proxy for hedge fund positioning given its role as a global custody hub, saw holdings fall 1% to $939.9 billion. China’s holdings dropped 4% to $633.4 billion, the lowest level since September 2008 and down more than 13% year on year, though China remains the third-largest non-US holder overall. On a transaction basis, June recorded Treasury inflows of $6.8 billion, down sharply from $56.6 billion in May, while overall net capital inflows into the US held steady at $133.5 billion, supported by $181.4 billion into equities and $35.6 billion into corporate bonds.
ING’s own read of the same period, drawing on Treasury International Capital system data, shows a considerably larger $72bn net liquidation of Treasuries by foreign holders in June, with Japan, China and some custodial centres among the net sellers, while Canada, Belgium and Switzerland were net buyers. ING notes the data series is volatile, with net foreign selling of $56bn over the past three months sitting against net buying of $205bn over the past 12 months, and says total US inflows including equities remain strong at $173bn for June.
On the broader Treasury market tone, ING points to the lapsing of the 60-day US-Iran truce without resolution as a meaningful shift, noting that prior moves above 4.65% on the 10-year had typically been met with reassuring signals from the Trump administration pointing to an imminent resolution with Iran. That reassurance has been notably absent this time, which ING says adds modest but ongoing upside pressure to energy prices at the margin. Combined with continued issuance pressure, particularly from hyperscaler-related credit issuance layered on top of Treasury supply, ING sees scope for yields to stay under pressure, even as it stresses credit spreads remain relatively contained. The bank attributes much of the recent rise in real yields less to issuance alone and more to a broader normalisation, arguing current levels represent a reversion toward the kind of real yields seen before the financial crisis and pandemic years suppressed them artificially.
ING also flags tightening liquidity conditions building in the eurozone banking system as the ECB’s bond portfolios continue to run off. Excess reserves have fallen by around €300bn this year to €2.16tn, feeding into funding spreads, with the overnight ESTR now trading at its widest level versus the ECB deposit rate since the first half of 2021, though further out the curve, 6-month and 1-year Euribor-OIS spreads remain broadly in line with year-to-date averages. Banks’ use of the ECB’s weekly liquidity operation stands at €16.5bn, down from a local peak near €22bn in early August but not materially above typical 2026 allocations, leaving overall conditions still ample for now. ING notes a late-July ECB bank treasurer survey found lenders intend to hold reserve buffers well above minimum requirements while still generally preferring market funding over ECB facilities, which carry some stigma, pointing to eventual tension as someone will need to move first to tap ECB operations, a shift ING tentatively expects around early 2027.
This article was written by Eamonn Sheridan at investinglive.com.