US treasury holdings high in Saudi Arabia’s estimation

Jiang Qiming/China News Service/VCG via Reuters

• Saudi’s US holdings at $130.5bn
• Yields rise to 5% with interest rates
• Fed expected to cut rates

Saudi Arabia’s holdings of US treasuries stayed close to a two-year high in February at $130.5 billion as yields rose in recent months, according to new data.

The Saudi central bank’s holdings fell $3.2 million month on month, or 0.3 percent, to $130.5 billion, maintaining Saudi Arabia’s place at number 17 in the list of foreign holders of assets, US Department of the Treasury data showed.

Treasuries are government debt instruments issued by the treasury and auctioned by the US Federal Reserve.

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The figure hit a high of $132 billion in December, after the yield on the benchmark 10-year US treasury hit 5 percent in October, its highest level since 2007. This was fuelled by high US Federal Reserve interest rates that aimed to bring down inflation. 

The Fed kept the benchmark overnight borrowing rate in a targeted range of 5.25 to 5.5 percent in March, for a third month in a row in December, although three cuts in borrowing costs are expected this year, Reuters reports. 

The yield curve on 10-year US treasuries has risen since December to about 4.5 percent, which may have a knock-on effect on policy in Saudi Arabia and other GCC states.

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Sama, the Saudi central bank, reduced holdings during the first half of 2023 as the government moved more of its wealth into riskier assets during a slump in economic growth caused by oil output cuts aimed at propping up oil prices. 

Analysts say the government has taken advantage of the high yields on US treasuries, rebalancing away from cash since cash holdings fell during that period. 

But Sama’s holdings in foreign currencies and gold have risen over the past year to SAR262.28 billion ($70 billion) in February, a 4.33 percent rise year on year. 

Saudi holdings in US treasuries have become less significant since it revamped its Public Investment Fund as a strategically aggressive sovereign wealth fund as part of its economic diversification strategy launched in 2016. 

PIF was the top spender worldwide among state-owned investors in 2023, deploying $31.5 billion across 48 deals, according to consultancy Global SWF. 

The top holders of US treasuries are Japan (at $1,127.5 billion), China and the UK.