US Treasury yields have reached 5%, creating a complex environment where higher costs of capital raise concerns about fiscal deficits while simultaneously offering income levels not seen since the Global Financial Crisis. According to Janus Henderson analysis, investors who purchased 10-year Treasuries at the October 2023 yield peak of 4.98% have subsequently earned a total return of more than 15%. Deutsche Bank estimates that positive 12-month total returns could be achieved provided yields remain below 5.5% over that period and 6.4% over two years. The elevated yields mean higher coupons that provide cushion against further yield increases, suggesting that 5% or higher may be the level attractive enough to absorb higher government debt levels.
Foreign holdings of U.S. Treasuries declined for a second consecutive month in July, falling to $9.248 trillion from $9.298 trillion in June, according to data from the Treasury Department released on Wednesday. Despite the monthly decline, Treasuries owned by foreigners showed a 1.5% increase compared to the same period last year. The July outflows of $3.6 billion marked a reversal from the $6.2 billion inflow recorded in June. Total foreign holdings reached $9.30 trillion as of June 2026, representing a 2.3% increase year-over-year, as reported by the Treasury International Capital (TIC) System. The latest data shows that foreign demand helps finance U.S. deficits, but it represents only one part of the broader market for U.S. government debt, with persistent deficits requiring additional borrowing.
Japan reduced its holdings of U.S. Treasury securities by $13 billion in July from the previous month, bringing total holdings down to $1.1 trillion, according to the latest Treasury data. This represents a significant 1.1% decline from $1.117 trillion in June, marking the third consecutive month of decreases. Japan's holdings have now dropped for three consecutive months, though they remain below their November 2021 peak of $1.325 trillion. The July 31 U.S.-Japan intervention to strengthen the yen may reduce the need for Japan to sell Treasury holdings to buy yen, but analysts warn that a stronger yen could make the yen carry trade less attractive, potentially creating selling pressure in U.S. Treasuries if unwound positions are invested in Treasuries. The United Kingdom emerged as a bright spot, with holdings increasing 6.2% to $998.3 billion from $939.9 billion in June, making it the second-largest foreign holder.
China's Treasury holdings dropped 2.4% to $618 billion in July from $633.4 billion in June, marking the second consecutive monthly decline. According to the Treasury data, China's July holdings represent the lowest level since September 2008, when they stood at $618.2 billion. Despite this decline, China remains the third-largest non-U.S. holder of Treasuries, with July holdings falling by more than 11% compared to the same period last year. China's holdings fell 13.4% year-over-year as of June 2026, with total holdings of $633.4 billion, well below Japan's $1.12 trillion and the UK's $939.9 billion. The country's Treasury portfolio is now significantly below its peak levels, reflecting a strategic shift in China's dollar asset allocation and a 13.4% annual decrease that continues to reshape global Treasury holdings.
Rather than competing for a fixed pool of capital, higher yields may be drawing fresh money into fixed income from cash and other asset classes. In the US Treasuries market, this could be from private investors, as domestic private ownership has risen to 50% of the market from 30% in recent years. With quantitative easing giving way to quantitative tightening, official buyers like the US Federal Reserve, central banks and reserve managers have stepped back from USTs. The corporate bond market growth trajectory shows normalization, with growth by a factor of five to six for all markets over the last 25 years, indicating that corporate credit is not doing anything unusual relative to other markets. High-yield primary transactions offering yields above 6% have been readily placed as the 10-year UST approached 5%, indicating that appetite remains for credit risk despite elevated yields.
