30-Year Yield at 5.321% as Foreign Treasury Holdings Dip

The yield on the 30-year US Treasury bond rose to around 5.321%, its highest since mid-2007. Foreign holdings of US Treasuries fell to $9.299 trillion in June from $9.371 trillion in May, Treasury Department data showed. ING said the heavy tone across the Treasury market has further to run.

Japan stayed the largest non-US holder after a 2.3% decline to $1.116 trillion, still below its November 2021 peak of $1.325 trillion. The UK, the second-largest holder and a proxy for hedge fund positioning given its role as a global custody hub, saw holdings slip 1% to $939.9 billion. China's stake dropped 4% to $633.4 billion, the lowest since September 2008 and down more than 13% from a year earlier. Total foreign holdings remain up 2.3% from a year earlier.

On a transaction basis, June recorded $6.8 billion of Treasury inflows, down sharply from $56.6 billion in May. Overall net capital inflows into the US held 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 much larger $72 billion net liquidation by foreign holders in June. Japan and China were among the net sellers. Some custodial centres sold as well. Net buying came from Canada and Belgium. Switzerland also added. ING said the series is volatile. Net foreign selling of $56 billion over the past three months compares with net buying of $205 billion over the past 12 months. Total US inflows including equities came to $173 billion for June.

ING's more important point is structural. Real yields resetting toward pre-financial-crisis norms is not necessarily a warning sign, it is a normalisation. The bank said current levels represent a reversion to the kind of real yields seen before the financial crisis. The pandemic years suppressed those yields artificially.

ING also pointed to the lapsing of the 60-day US-Iran truce without resolution. Earlier moves above 4.65% on the 10-year had typically drawn reassuring signals from the Trump administration. Officials pointed to an imminent resolution. That reassurance has been absent this time, ING said, adding modest but ongoing upside pressure to energy prices at the margin. Combined with continued issuance pressure, particularly from hyperscaler-related credit layered on top of Treasury supply, ING sees scope for yields to stay under pressure. It stressed that credit spreads remain relatively contained.

On the eurozone side, ING noted tightening liquidity conditions in the banking system. The ECB's bond portfolios continue to run off. Excess reserves have fallen by about €300 billion this year to €2.16 trillion, feeding into funding spreads. The overnight ESTR now trades at its widest level versus the ECB deposit rate since the first half of 2021. Further out the curve, six-month and one-year Euribor-OIS spreads stay broadly in line with year-to-date averages.

Banks' use of the ECB's weekly liquidity operation stands at €16.5 billion, down from a local peak near €22 billion in early August. That level is not materially above typical 2026 allocations, so conditions remain ample for now. A late-July ECB bank treasurer survey found lenders intend to hold reserve buffers well above minimum requirements. They still generally prefer market funding over ECB facilities, which carry some stigma. Someone will need to move first to tap ECB operations, ING said, tentatively expecting that shift around early 2027.