There is a report released by the Treasury that is updated once a month showing the U.S. Treasuries held by foreign countries.  As of this writing, it was last updated on July 18, 2016.

Despite previous reports of the Chinese dumping U.S. Treasuries, this isn’t really the case.  China is still the number one holder of Treasuries, with Japan coming in a close second.  Third place is nowhere close to Japan.

As of the end of May 2016, China held $1.244 trillion.  This is only a slight decrease from $1.271 trillion a year ago.  While $27 billion is a lot of money, it isn’t much of a drop from a year ago when put into context.

Japan has gone from owning about $1.197 trillion last year to $1.133 trillion.  This is a little more of a drop, but it is not as if the Japanese central bank is massively selling off Treasuries.  The Bank of Japan is busy buying up its own government’s debt (at negative yields), so perhaps it is not rolling over all of its maturing U.S. debt.

There is no reason to expect this situation to change in the short run.  The Chinese and Japanese officials in charge are a bunch of mercantilists.  They think they have to buy U.S. Treasuries in order to boost their export industries.  Meanwhile, they have no problem in depreciating the value of their currencies.

The massive U.S. debt held by foreigners (over $6 trillion) is somewhat of a subsidy to American consumers.  Unfortunately, it is also a subsidy to the U.S. Congress and the entire U.S. government.  It enables them to run up debt at lower interest rates than would otherwise be the case.

Right now, we see negative yields in Japan and many places in Europe.  This is mostly the result of central bank buying.

In the U.S., we have not seen negative yields.  The yields on short-term debt were at or near zero for a while, but these have gone up slightly.  Longer-term yields have fallen, as the 10-year yield has been around 1.5%.

The interesting thing is that long-term rates have fallen in the U.S. despite a tight monetary policy from the Fed.  The Fed has not been buying U.S. Treasuries since October 2014 (the end of QE3), except for rolling over its maturing debt.

This means that private investors have been buying U.S. Treasuries/ bonds, particularly longer-term debt.  Foreign holdings overall have remained relatively steady.

This indicates that there is some fear in the U.S., at least from bond investors.  Why would investors be locking in 10-year rates for around 1.5%?

The yield curve has been flattening, but it still has a way to go for inversion.  An inverted yield curve is a classic indicator of recession.

China and Japan have their own problems, but they continue to maintain most of their holdings of U.S. government debt.

But investors are signaling a weakening economy, at least from the bond market.  I trust the bond market over the stock market, at least in signaling an upcoming recession.

Keep an eye on long-term yields.  If they continue to fall without central bank buying, then a recession should be expected.