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Japan surpasses China as largest non-US holder of Treasuries

[NEW YORK] Japan overtook China as the largest non-US holder of Treasuries in June, after raising its holdings to a nearly three-year high, according to US Treasury department data released on Thursday.

Japan's holdings of US Treasuries rose to US$1.122 trillion in June, from US$1.101 trillion in May, and were its largest since October 2016.

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

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

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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 US 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$6.636 trillion of US government debt in June, up from US$6.539 trillion in May, suggesting continued demand for the safe-haven asset.

Foreign flows of US Treasuries showed an outflow of US$7.71 billion in June, from net selling of US$32.785 billion in May. Foreign official institutions sold US$14.605 billion during the month, compared with outflows from the same group totalling US$21.998 billion in May.

Offshore private investors purchased Treasuries amounting to US$7.071 billion in June.

Data also showed that after 13 straight months of selling, foreigners finally bought US stocks in June to the tune of US$26.589 billion, after outflows of US$1.445 billion in May.

Foreigners also bought US$99.1 billion in net long-term securities in April, after buying US$4.6 billion in May, the report showed.