JAPAN became the largest holder of U.S. Treasuries for the month of October, outpacing China for the first time in nearly two years, data from the U.S. Treasury Department showed late Thursday.

    Japan held US$1.131 trillion in U.S. Treasuries, while China’s holdings declined to US$1.115 trillion, dropping US$41.3 billion.

    The last time Japan held the largest holdings of Treasuries was in February 2015, when it had US$1.224 trillion in U.S. government debt, data showed.

    October’s drop of US$41.3 billion was the largest since December 2013 and the third-ever largest monthly reduction of China’s holdings of U.S. debt.

    “China has been needing liquidity, and that’s one of the sources of them getting it, with a lot of moving parts such as the value of their currency,” said Lou Brien, market strategist, at DRW Trading in Chicago.

    China’s Treasury holdings for October were the smallest since July 2010, declining for five straight months, data showed.

    China has been dipping into its reserves, selling Treasuries to support the yuan. The yuan fell to its weakest level against the U.S. dollar in more than eight years Thursday, after the Federal Reserve raised interest rates and indicated that it expects three more rate increases next year.

    In the year through October, China had slashed its Treasuries holdings by US$130.4 billion, or nearly 10.5 percent.

    In the meantime, Japan’s holdings have remained fairly steady, allowing the yen to weaken against a surging dollar, analysts said.

    China overtook Japan as the largest U.S. debt holder in September 2008 as the financial crisis was going into high gear.

    At its peak in November 2013, it had amassed nearly US$1.32 trillion of Treasuries but now holds some US$200 billion less.

    Data also showed that foreigners sold Treasury bonds and notes for a seventh straight month in October. The month’s outflows totaled US$63.54 billion, from record foreign selling of US$76.59 billion in September.

    Foreign official institutions such as central banks sold US$45.26 billion in October, with private investors selling US$19.17 billion.

    Samarjit Shankar, global markets strategist, at BNY Mellon, noted that its custody data also showed net outflows since June, suggesting investors had sold U.S. debt given the significant overweight positions built for years.

    As a result of the selling, Treasury yields have risen. Yields on benchmark U.S. 10-year notes at the beginning of October were 1.6240 percent, hitting a high of 1.8790 percent and ending the month at 1.8340 percent. Late on Thursday, 10-year yields were at 2.598 percent.

    Data also showed foreigners bought US$9.4 billion in long-term U.S assets in October, after selling US$64.8 billion the previous month. Including shorter-dated securities, overseas investors purchased US$18.8 billion in October, after selling a massive US$154.4 billion in September.

    (SD-Agencies)