Wall St Week Ahead: ‘Crowded’ megacap trade in US stocks awaits earnings test

NEW YORK, April 19 – Next week’s earnings reports from some of the market’s biggest technology and growth companies could prove an important test for the US stock rally, which has flagged as expectations for interest cuts fade.

Tesla, Meta Platforms, Alphabet, and Microsoft – all set to report next week – are part of the group of companies that had been dubbed the Magnificent Seven as they led the S&P 500 to a 24% gain last year.

The companies are seen as important bellwethers due to dominant positions atop their industries, while heavy index weightings give their share price moves an outsize influence on benchmarks such as the S&P 500. Though the market’s rally has broadened this year, megacap stocks remain a portfolio staple, with fund managers in the latest BofA Global Research survey once again naming them the market’s “most crowded” trade.

Many believe their results could be especially important to markets this time around. The S&P 500 has slid in recent weeks, roughly halving its year-to-date gain to 5% as stickier-than-expected inflation erodes the prospects for the Federal Reserve to cut rates this year.

Additionally, the months-long rally in stocks has made the index expensive relative to history at a time when rising Treasury yields are pressuring equity valuations. Disappointing earnings from the market’s heavyweights could give investors less reason to hold stocks.

“Psychologically, the companies coming in at or above expectations is important,” said David Katz, chief investment officer with Matrix Asset Advisors. “There’s a lot of good news built into a lot of these companies.”

Investors will also focus on next Friday’s release of the monthly Personal Consumption Expenditures Price index, a crucial piece of inflation data before the Fed’s April 30-May 1 meeting. Fed funds futures late Thursday were pricing in less than 40 basis points in rate cuts this year, down from 150 bps expected at the start of 2024, according to LSEG data.

The performance of megacaps’ shares has diverged in 2024, after last year’s epic run. Tesla, which reports results on Tuesday, has seen its shares tumble about 40% in 2024 amid concerns about its electric vehicle business.

Meta Platforms, whose shares have jumped over 40% in 2024, is due on Wednesday, while Alphabet and Microsoft, which are logging year-to-date gains of about 12% and 7.5% respectively, are set for Thursday.

Of the other megacaps, Apple and Amazon are set to report the following week, while Nvidia, whose shares have soared 70% this year on optimism over its artificial intelligence chips, reports on May 22.

Six of the seven, excluding Tesla, are expected to post collective earnings growth of 42.1% in the first quarter, UBS strategists said on April 8.

“It appears that the expectations are that they’re really going to deliver again,” said Patrick Kaser, portfolio manager at Brandywine Global. “And so the risk to me is skewed to the downside.”

Excluding the Magnificent 7, S&P 500 earnings have been negative on a year-over-year basis over the prior four quarters, according to JPMorgan analysts, underlining the group’s importance to the market.

Beyond the megacaps, over 300 S&P 500 companies are expected to report over the coming two weeks. Earnings are expected to rise 9% for the full year, according to LSEG data, with added pressure on the results to support overall valuations.

The S&P 500’s forward price-to-earnings ratio has moderated somewhat this month but is still at 20 times, well above its long-term average of 15.7, according to LSEG Datastream.

“In an environment where there is a lot of uncertainty about Fed rate policy, there’s a lot of geopolitical tensions rising, if companies aren’t really pushing the pedal on giving positive outlooks for growth … that could be the factor that weighs on stocks,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial.

(Reporting by Lewis Krauskopf, additional reporting by Chuck Mikolajczak; Editing by Aurora Ellis)

China, Hong Kong stocks end lower on Middle East tensions

SHANGHAI, April 19 – China and Hong Kong stocks declined on Friday, tracking their regional peers, pressured by reports of an Israeli attack on Iran that sparked rising safe-haven bets.

** The latest developments prompted concerns over a widening of the Israel-Hamas war in Gaza to include other countries in the Middle East, causing investors to rush to sweep up typical safe-haven assets.

** Initial U.S. news reports late on Thursday said Israel launched missiles at Iran in retaliation for an April 13 attack on Israel that was in response to an alleged Israeli assault that killed Iranian military leaders on April 1. Iranian officials on Friday told Reuters there was no missile attack.

** “It’s a big dampener on risk assets, including equities and most currencies,” said Christopher Wong, currency strategist at OCBC Bank.

** At the close, the Shanghai Composite index was down 0.29% at 3,065.26 points, while the blue-chip CSI 300 was down 0.79%.

** The financial sector, consumer staples, real estate, and healthcare fell between 0.44% and 1.55%.

** The smaller Shenzhen index ended down 0.73% and the start-up board ChiNext Composite index was weaker by 1.762%.

** The Hang Seng index SI closed 161.73 points or 0.99% lower at 16,224.14. The Hang Seng China Enterprises index fell 0.99% to 5,746.61.

** Around the region, MSCI’s Asia ex-Japan stock index was weaker by 1.64%, while Japan’s Nikkei index closed down 2.66%.

** The yuan was quoted at 7.2409 per U.S. dollar at 08:32 GMT, 0.04% weaker than the previous close of 7.2382.

(Reporting by Shanghai Newsroom; Editing by Mrigank Dhaniwala and Varun H K)

Oil steadies after surge following reported Israeli attack on Iran

April 19 – Oil steadied on Friday after prices spiked earlier on reports that Israel had attacked Iran, as market fears of a major escalation to hostilities in the Mideast appeared to ease and a build-up of global oil stocks weighed.

The benchmark contracts surged more than $3 before dipping back down. At 0845 GMT, Brent futures were up 14 cents, or 0.2%, at $87.25 a barrel. The most active U.S. West Texas Intermediate contract climbed 23 cents, or 0.3%, to $82.96 per barrel.

Israel launched an attack on Iranian soil on Friday, sources told Reuters, the latest tit-for-tat exchange between the two countries that threatens to drag the region deeper into conflict.

Iranian media reported explosions, but an Iranian official told Reuters those were caused by air defence systems. State media said three drones over the central city of Isfahan had been shot down.

“The fear is that we are on an escalating tit-for-tat retaliatory path. … The hope is that the retaliatory strikes will be fading in magnitude and then fizzle out,” said Bjarne Schieldrop, commodities analyst at SEB Research.

“The oil market is nonetheless concerned as there is too much oil supply at stake.”

Last weekend Iran launched hundreds of drones and missiles in a retaliatory strike after a suspected Israeli attack on its embassy compound in Syria. Most of the drones and missiles were downed before reaching Israeli territory, with minimal damage and casualties.

Investors have been closely monitoring Israel’s reaction to the April 13 Iranian drone attacks. The geopolitical risk premium in oil prices had been unwinding this week on the perception that any Israeli retaliation to Iran’s attack would be moderated by international pressure.

Meanwhile a rise in global oil storage weighed on prices.

“Visible oil stocks globally have steadily risen, which seems counterintuitive given strong price action recently,” Citi analysts wrote in a note late on Thursday, citing a build of about 1 million barrels per day in crude stocks over the first quarter.

The U.S. also announced sanctions on Iran, an OPEC member, targeting its unmanned aerial vehicle production after the country’s drone strike on Israel. The sanctions on Iran, however, exclude its oil industry.

(Reporting by Andrew Hayley in Beijing, Florence Tan in Singapore and Laila Kearney in New York; Editing by Sonali Paul and Tom Hogue, Kirsten Donovan and Sharon Singleton)

Oil settles slightly higher as Iran plays down reported Israeli attack

NEW YORK, April 19 – Oil settled slightly higher on Friday, but posted a weekly decline, after Iran played down a reported Israeli attack on its soil, a sign that an escalation of hostilities in the Middle East might be avoided.

Brent futures settled up 18 cents, or 0.21%, at USD 87.29 a barrel.

The front-month US West Texas Intermediate (WTI) crude contract for May ended 41 cents higher, or 0.5%, to USD 83.14 a barrel. The more active June contract closed 12 cents higher at USD 82.22 a barrel.

Both benchmarks spiked more than USD 3 a barrel earlier in the session after explosions were heard in the Iranian city of Isfahan in what sources described as an Israeli attack. However, the gains were capped after Tehran played down the incident and said it did not plan to retaliate.

“It was nothing but a big show, and so the markets deflated as quickly as they spiked,” said Tim Snyder, economist at Matador Economics.

Investors had been closely monitoring Israel’s response to Iranian drone and missile attacks on April 13 that was in turn a response to a presumed Israeli air strike on April 1 that destroyed a building in Iran’s embassy compound in Damascus.

Meanwhile, US lawmakers have added sanctions on Iran’s oil exports to a pending Ukraine aid package after Tehran’s strike on Israel last weekend.

Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.

The International Monetary Fund expects OPEC+ to begin increasing oil output from July, media reported on Friday.

OPEC+ members, led by Saudi Arabia and Russia, last month agreed to extend voluntary output cuts of 2.2 million barrels per day (bpd) until the end of June. That has helped keep oil prices elevated.

As oil’s risk premium has gradually unwound, prices have fallen around 3% since Monday. Both benchmarks posted their biggest weekly loss since February.

Investors, however, are not ruling out the possibility that Middle Eastern tensions will disrupt supply.

Analysts from Goldman Sachs and Commerzbank raised their Brent crude forecasts on Friday, taking into account geopolitical tensions as well as the prospect of rising demand and restrained supply by OPEC and allies (OPEC+).

“Oil demand is growing at a healthy pace, and supply should be constrained due to the extensions of the voluntary production cuts of OPEC+,” UBS analyst Giovanni Staunovo said.

US energy firms this week added oil and natural gas rigs for the first time in five weeks, energy services firm Baker Hughes said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, rose by 2 to 619 in the week to April 19.

Money managers cut their net long US crude futures and options positions in the week to April 16, the US Commodity Futures Trading Commission (CFTC) said on Friday.

(Reporting by Nicole Jao and Laila Kearney in New York, Robert Harvey and Noah Browning in London, Deep Vakil in Bengaluru, Andrew Hayley in Beijing, Florence Tan in Singapore; editing by Barbara Lewis, Jonathan Oatis, and Bill Berkrot)

Dollar rises with US yields on dwindling Fed cut hopes

April 18 – The dollar index rose 0.18% after hawkish Philly Fed data and comments from Federal Reserve Bank of New York President John Williams reinforced the view rate cuts are off the table unless the US disinflation trend resumes, and though not his baseline forecast, the Fed would hike if data called for it.

Treasury yields rebounded 5-6bp from 2 to 10-year tenors. They had fallen back from Tuesday’s new 2024 highs that came in response far above forecast US retail sales and Fed Chair Jerome Powell and Vice Chair Philip Jefferson then affirming rate cuts would be delayed and were even more data-dependent.

Static, yet still quite low jobless claims, and weaker-than-forecast leading indicators and existing home sales had little impact on markets. Futures now price in a first Fed rate cut in either September or at the Nov. 7 meeting, two days after the US election. And total 2024 cuts of just 39bp are being priced in.

EUR/USD fell 0.26%, as ECB policymakers largely stuck to the view that rate cuts could begin by June and that inflation was likely to retreat further. That as the Bundesbank noted the German economy was doing a bit better, though “there is still no evidence of sustained improvement.” The eurozone’s current account surplus fell in February on weaker trade.

EUR/USD’s rebound from Tuesday’s low by 1.0600 looks like a correction, not the start of a trend reversal.

USD/JPY rose 0.14%, more than reversing earlier 153.96 lows as Treasury-JGB yield spreads rose on the Philly Fed and dwindling Fed rate cut expectations.

Prices still face major resistance by 155 and the potential threat of BoJ intervention to support the yen. That risk gained some credibility due to Wednesday’s US, Japan, and South Korea finance ministers’ agreement to “consult closely” on FX markets.

However, unless US data cool off, an intervention-driven USD/JPY drop would be viewed as a buying opportunity, because the BoJ is seen moving very gradually with any further rate hikes that could narrow very attractive Treasury-JGB yield spreads.

Friday’s Japan CPI data is unlikely to change that view, unless the core inflation rate rises for a second month instead falling to 2.6% from 2.8% in February as forecast.

Somewhat ironically, the Fed’s favored inflation gauge, core PCE due out on April 26, was also at 2.8% in February, though US core CPI inflation held steady for a second month at 3.8%.

Sterling fell 0.11%, led by falling Gilts-Treasury yields spreads, after correcting a small slice of its mid-April plunge. The BoE is now seen a bit more likely to cut rates in Q3 than the Fed, with swaps pricing in 43bp of cuts by year-end. That amid conflicting dovish and hawkish views from Governor Andrew Bailey on Wednesday and policymaker Megan Greene on Thursday.

UK March retail sales are due out Friday and are seen recovering from weak February results.

Risk-off flows into the dollar could rise again as US stocks continue to April’s retreat and pre-weekend geopolitical anxiety may rise.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Yields rise near 5-month highs after jobless claims data, TIPS auction strong

NEW YORK, April 18 – US Treasury yields hovered near their highest levels since November on Thursday as investors weighed steady labor market data and warnings from Federal Reserve officials that the decline in inflation may have stalled.

Yields have jumped near five-month highs this week following stronger-than-expected inflation data last week. Markets are now pricing in a total of 42 basis points in cuts by the end of this year, down from more than 160 basis points in cuts expected in January, and now see the first cut coming in September, according to CME’s FedWatch Tool.

Data from the Labor Department on Thursday showed the number of Americans filing new claims for unemployment benefits was unchanged last week, pointing to continued labor market strength. Initial claims for state unemployment benefits remained at a seasonally adjusted 212,000 for the week ended April 13. Economists polled by Reuters had forecast 215,000 claims in the latest week.

“The extremely steady reads on recent claims data suggest that the trend of solid payroll increases should continue, and that the unemployment rate will remain solidly below 4%,” said Thomas Simons, US economist at Jefferies.

Federal Reserve officials have noted the continued strength of the US labor market as a reason to delay cutting interest rates to avoid a re-acceleration of inflation.

Atlanta Federal Reserve President Raphael Bostic suggested on Thursday that the Fed will not be able to cut rates until the end of the year as inflation returns to the US central bank’s 2% more slowly than many had expected.

“For me, that’s okay … I’m not in a mad dash hurry to get there,” he said.

Bostic was the latest in a number of Fed officials who have sounded a hawkish tone on rates.

Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday that she wants to see more confidence that inflation is easing before the central bank begins cutting rates.

“At some point, as we get more confidence, we will start to normalize policy back to a less restrictive stance, but we don’t have to do that in a hurry,” Mester said.

Fed Governor Michelle Bowman warned in a separate speech on Wednesday that “Progress on inflation has slowed, and … maybe it is even stalled at this point.”

The yield on 10-year Treasury notes was up 5.8 basis points to 4.643% and was hovering near five-month highs. The yield on the 30-year Treasury bond was up 4.1 basis points to 4.740%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 5.6 basis points at 4.988%.

Yields continued to rise, in the opposite direction of prices, despite slightly weaker than expected readings of existing home sales and US leading economic indicators.

The results of the US Treasury’s USD 23 billion auction of US five-year Treasury Inflation-Protected Securities on Thursday were stronger than expected across almost all metrics. The note’s high yield stopped at 2.242%, lower than the expected rate at the bid deadline, which suggested that investors were willing to settle for a lower yield to take the security.

Then bid-to-cover ratio, another measure of demand, was 2.58, slightly above the 2.55 seen in December, but much higher than October’s 2.38. The note’s bid-to-cover ratio was the highest since June 2022.

(Reporting by David Randall; Additional reporting by Gertrude Chavez-Dreyfuss. Editing by Chizu Nomiyama, Josie Kao, and Nick Zieminski)

Gold surges as escalating Middle East tensions bolster demand

April 18 – Safe-haven gold gained on Thursday as persistent tensions in the Middle East added to the metal’s appeal despite robust economic data from the US that raised prospects of fewer interest rate cuts.

Spot gold firmed 1% at USD 2,384.83 per ounce at 1:47 p.m. ET (1747 GMT). Prices touched an all-time high of USD 2,431.29 last Friday.

US gold futures settled 0.4% higher at USD 2,398.

In the Middle East, Israel has signaled it will retaliate to a volley of attacks from Iran despite calls for restrain from Western countries but has not said how.

“When there are geopolitical tensions, the natural response is for investors to flee to gold, which is happening now. If the conflict further escalates, prices could go north of USD 2,500-USD 2,600, and if there is a ceasefire, then they could fall to USD 2,200,” said Everett Millman, chief market analyst with Gainesville Coins.

“Central bank purchases are also placing a floor beneath the prices,” he added.

Bullion’s upside came despite data showing US weekly jobless claims were unchanged at low levels last week. Strong US economic data and hawkish rhetoric from Fed officials have prompted investors to drastically rethink the chances of the Federal Reserve cutting rates any time soon.

Higher interest rates reduce the appeal of holding non-yielding gold.

Bank of China International (BOCI) analyst Xiao Fu said that with rate cut expectations from the Fed coming down and with the natural profit-taking that comes when prices rally quickly, there might be some pressure on gold, but a sharp decline is unlikely.

Spot silver rose 0.3% to USD 28.30 per ounce.

“The silver shortage narrative is gaining attention, with demand consistently outpacing new supply. This imbalance could lead to a significant price adjustment in the future,” said Alexander Zumpfe, a precious metals trader at Heraeus Metals.

“Long-term trends in the silver market remain bullish, and while short-term price movements can be volatile and influenced by futures trading.”

Platinum gained 0.7% to USD 944.25 and palladium added 0.1% to USD 1,027.34.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Tasim Zahid and Alan Barona)

Wobbling US stocks could push volatility-linked funds to ramp up selling

NEW YORK, April 18 – Volatility-linked investment strategies are joining the nascent sell-off in US stocks and could help accelerate declines if market gyrations keep increasing.

Volatility control funds – systematic investment strategies that typically buy equities when markets are calm and sell when they grow turbulent – hoovered up stocks as the S&P 500 marched to record highs this year.

With the S&P 500 now off more than 4% from those levels and the Cboe Volatility Index near its highest point since October, some of these funds are once again becoming sellers.

Though the S&P 500 is still up about 5% year-to-date, further gyrations could trigger more selling from the funds: analysts at Nomura estimate the strategies could dump some USD 45 billion worth of stocks if the S&P 500 averages daily moves of 1% over the next two weeks.

“Their positioning is clearly above average,” said Parag Thatte, a strategist at Deutsche Bank. “There is room for them to pull back in terms of exposure.”

Nomura’s Charlie McElligott estimates that volatility control funds have already started selling, shedding about USD 16.2 billion in equity exposure over the last week.

While that is small compared with the S&P 500’s USD 42 trillion market capitalization, the funds’ tendency to follow market momentum can sometimes exaggerate stock moves, market participants said. Other, slower moving strategies could also join in if volatility increases.

The market’s recent swings were preceded by a long period of calm in which investors piled in to equities, driven by evidence of strong-yet-stable economic growth and expectations that the Fed would deliver several rate cuts this year. The VIX has not risen over the 20 mark – a level associated with healthy demand for portfolio hedges – for 120 sessions, the longest such streak since 2018.

Stock gyrations have increased in recent weeks as hopes for rate cuts fade in the face of stronger-than-expected inflation. Those worries have been exacerbated as a spreading conflict in the Middle East drives up oil prices, threatening to push inflation higher.

Volatility has picked up in other asset classes as well. The MOVE index, measuring expected volatility in US Treasuries, stands at a three-month high following a steady rise in Treasury yields. The Deutsche Bank FX Volatility Index, a measure of currency market swings, has climbed to a near 10-week high in the face of a rally in the US dollar.

“The volatility increase we’re seeing is across asset classes,” said Mandy Xu, head of derivatives market intelligence at Cboe Global Markets. “I think it is the market waking up to potential downside risk.”

One reason that selling from volatility-control funds has not kicked into higher gear so far is that the declines in the S&P 500 have been relatively measured, Barclays strategists wrote.

However, “the funds are quite susceptible to a massive unwinding from the currently high level of equity allocation, particularly if volatility reprices higher in case inflation keeps surprising to the upside, limiting the Fed’s ability to cut rates,” according to Barclays.

Volatility control funds have a relatively short fuse compared with other computer-driven strategies, making them among the first to react when the market landscape changes.

A more pronounced jump in volatility could also activate slower-reacting funds that use volatility as a trading signal, including commodity trading advisers and risk parity funds, piling more pressure on the market as they ramped up selling.

Nomura’s McElligott said CTAs could sell some USD 31 billion in equities if the S&P 500 falls another 2% to around the 4,914 level in the weeks ahead.

One catalyst for such moves could be corporate earnings season, which kicked into gear last week. Investors next week will be bracing for earnings from a slew of technology and growth heavyweights, including Tesla, Meta Platforms, Microsoft, and Google parent Alphabet. The US will also get a look at another inflation measure on April 26, when the personal consumption expenditures index is released.

“Volatility control has been the larger force to date with regard to systematic deleveraging … during this choppy pullback,” McElligott said. “CTAs join the party in the coming weeks if weakness persists.”

(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Oil holds near 3-week low as US sanctions interrupt easing tensions

NEW YORK, April 18 – Oil prices held near a three-week low on Thursday as investors weighed robust US jobs data and sanctions on Venezuela and Iran against global demand concerns and easing tensions in the Middle East.

Brent futures rose 17 cents, or 0.2%, to USD 87.46 a barrel by 1:05 p.m. EDT (1705 GMT), while US West Texas Intermediate (WTI) crude rose 38 cents, or 0.5%, to USD 83.07.

On Wednesday, both benchmarks closed at their lowest since March 27.

Increased interest in energy trading boosted open interest in Brent futures LCOTOT on the Intercontinental Exchange to its highest since February 2021 for a second day in a row on Wednesday.

In other energy markets, the drop in US diesel futures to a 15-week low, cut the heating oil crack spread, which measures refining profit margins, to its lowest since April 2023.

In the US, President Joe Biden’s administration said it wants to keep gasoline prices within current ranges as the country heads into its summer driving season.

Meanwhile, the number of Americans filing new claims for unemployment benefits was unchanged at a low level last week, pointing to continued labor market strength.

US labor market resilience, which is driving the economy, together with elevated inflation has led financial markets and some economists to expect the US Federal Reserve could delay cutting interest rates until September.

Lower interest rates would reduce borrowing costs and could spur economic growth and demand for oil.

In Europe, meanwhile, the European Central Bank made it clear that an interest rate cut is coming in June but policymakers continued to differ on moves thereafter or how low interest rates can go before once again starting to stimulate the economy.

In China, the world’s biggest oil importer, senior officials at the central bank said there was still room for the bank to take steps to support the economy, but efforts are needed to prevent cash from sloshing around the banking system as real credit demand weakens.

The world’s second-biggest economy grew faster than expected in the first quarter, but several March indicators, such as property investment, retail sales, and industrial output, showed that domestic demand in China remains frail.

On the supply side, OPEC-member Venezuela lost a key US license that allowed it to export oil to markets around the world, which would hit the volume and quality of its crude and fuel sales.

The US also announced sanctions on Iran, another OPEC member, targeting the country’s unarmed aerial vehicle production after its drone strike on Israel last weekend.

But additional sanctions prevented Iran’s oil industry. Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.

Analysts at energy advisory Ritterbusch and Associates said the sanctions on Venezuela and Iran were already “largely discounted and being shrugged off” by the market.

Investors had been largely unwinding the geopolitical risk premium in oil prices in the last three sessions – during which Brent lost around 3.5% – on the perception that any Israeli retaliation to Iran’s attack on April 13 will be moderated by international pressure.

(Reporting by Scott DiSavino in New York, Robert Harvey in London, Deep Vakil in Bengaluru, Katya Golubkova in Tokyo, and Mohi Narayan in New Delhi; Editing Chizu Nomiyama, Mark Potter, and Josie Kao)

Foreign holdings of US Treasuries hit record high; Japan holdings rise, data shows

NEW YORK, April 17 – Foreign holdings of US Treasuries surged to a record in February, its fifth straight monthly rise, Treasury Department data released on Wednesday showed.

Holdings totaled USD 7.965 trillion, up from a revised USD 7.945 trillion in January. Treasuries owned by foreigners rose 8.7% from a year earlier.

Holdings of Treasuries grew the most in Belgium, by USD 27 billion, to hit USD 320 billion. Japan, the largest non-US holder of Treasuries, increased its US government debt to USD 1.167 trillion, the largest since August 2022 when the country’s holdings were at USD 1.196 trillion.

Investors have been alert to the threat of Japanese intervention in the currency market to boost the yen, which plunged to a 34-year low of 154.79 per dollar on Tuesday.

The Bank of Japan intervened three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid toward a 32-year low of 152 to the dollar.

In September and October 2022, Japan’s Treasury holdings declined USD 131.6 billion from USD 1.196 trillion in August.

China’s pile of Treasuries also fell in February to USD 775 billion, data showed. The monthly decline of USD 22.7 billion was the second biggest among the 20 major countries on the Treasury’s list.

Holdings of Treasuries by China, the world’s second-largest economy, have been declining, reaching USD 763.5 billion in February, the lowest since March 2009.

Britain listed its Treasury holdings at USD 700.8 billion, up about USD 9 billion from January.

The benchmark 10-year Treasury yield started February at 3.863% US10YT=RR and ended the month at 4.252%, up nearly 39 basis points. Yields rose as a slew of solid economic data was released that month, reflecting expectations that the Federal Reserve will delay cutting interest rates.

Major US asset classes had inflows during the month, the data showed.

On a transaction basis, US Treasuries posted inflows of USD 88.8 billion, up from USD 46.3 billion in January.

Foreign buying of US corporates and agencies persisted in February, with inflows of USD 52.7 billion and USD 3.7 billion, respectively.

US equities showed a minor inflow of USD 400 million, compared with outflows of USD 15.4 billion in January.

Overall, net foreign acquisitions of long- and short-term securities, as well as banking flows, showed a net inflow of USD 51.6 billion in February, up from outflows of USD 30.8 billion the previous month, Treasury data showed.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)

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