JAPAN overtook China as the largest non-U.S. holder of Treasuries in June, after raising its holdings to a nearly three-year high, according to U.S. Treasury department data released last week.

Japan’s holdings of U.S. Treasuries rose to US$1.12 trillion in June, from US$1.10 trillion in May, and were its largest since October 2016.

It was not the first time that Japan supplanted China as the largest non-U.S. Treasury holder. From January to May 2017, Japan held more U.S. Treasuries than China, data showed.

“The generally low and negative-yielding sovereign debt market make U.S. Treasuries comparatively more attractive than European and Japanese debt,” said Benjamin Jeffery, rates strategist at BMO Capital Markets in New York.

The steepening of the yield curve — when rates on long-term bonds are higher than short-term notes — in June made currency hedging costs “a bit less onerous for foreign buyers,” he added.

China was the second largest owner of U.S. Treasuries with US$1.112 trillion in June, compared with US$1.110 trillion the previous month.

Overall, major foreign holders of Treasuries had US$6.64 trillion of U.S. government debt in June, up from US$6.54 trillion in May, suggesting continued demand for the safe-haven asset.

Foreign flows of U.S. Treasuries showed an outflow of US$7.71 billion in June, from net selling of US$32.79 billion in May. Foreign official institutions sold US$14.61 billion during the month, compared with outflows from the same group totaling US$21.99 billion in May.

Offshore private investors purchased Treasuries amounting to US$7.07 billion in June.

(SD-Agencies)