By Gertrude Chavez-Dreyfuss

NEW YORK Foreign holdings of U.S. Treasuries in August rose to their largest level since December 2021, data from the Treasury Department showed on Wednesday, rising for a third straight month.

Total holdings of U.S. Treasuries climbed to $7.707 trillion in August from $7.655 trillion the previous month. Compared with a year earlier, overseas holdings were up roughly 2.8%.

Japanese investors raised their stash of Treasuries to $1.116 trillion from $1.112 trillion in July. Their August holdings were the largest since April, rising for a third straight month.

Japan remains the largest non-U.S. holder of U.S. government debt.

"There is still buying coming through from foreign investors. As much as the market is fearing that foreign investors are stepping away, they haven't actually," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

"The bigger fear is that they can step away in the coming months especially as deficits increase and that is keeping a lot of investors nervous," he added.

China's holdings of Treasuries fell further to $805.4 billion in August, the lowest since May 2009, when it had $776.4 billion, data showed.

Some analysts said China could be under pressure to defend the weakening yuan, and selling off U.S. debt may have been used for intervention purposes to support its currency.

"It's unclear whether this was for currency purposes because Chinese reserves have not declined, which is odd," Goldberg said.

"It's really difficult to tell why their holdings are declining so much, but it could certainly be to stabilize the currency."

The benchmark 10-year Treasury yield started August at 4.047%, ending the month at 4.019%.

Data further showed, major U.S. asset classes showed inflows during the month.

On a transaction basis, U.S. Treasuries posted inflows of $22.1 billion in August, from an outflow of $4.4 billion in July.

U.S. equities had inflows of $500 million, dropping from $28.9 billion in July and $120.4 billion in June.

Foreign buying of U.S. corporates and agencies in August continued, with inflows of $24.6 billion and $14 billion, respectively.

Overall, foreign residents increased their holdings of long-term U.S. securities in August; net purchases were $61.3 billion, according to U.S. Treasury data.

(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and David Gregorio)