Foreign purchases of asset-backed securities are on the rise

Asian nations and the Cayman Islands are the largest holders of U.S. ABS

Foreign holdings of U.S. asset-backed securities stood at $1.562 trillion as of June 30 of 2021, up from $1.489 trillion as of the same date in 2020, according to preliminary data released by the U.S. Department of the Treasury.

The Treasury report defines asset-backed securities (ABS) as including mortgage-backed securities as well as securities backed by the cash flows from other asset pools, such as credit card receivables. The report, however, does not offer a breakdown of the ABS by type.

Still, the report does provide some insight into the foreign demand for U.S. asset-backed securities as well as the major holders of those securities by country. Leading the charge on that front is Japan, which held $332 billion in ABS as of June 30, 2021 — the most recent data available.

Ranking second is Taiwan, with $245 billion in ABS as of the same date. The third largest holder of ABS is China, at $217 billion. 

The tax haven British overseas territory of the Cayman Islands ranked fourth, with $139 billion in ABS. Ranking fifth is Canada, at $108 billion. 

No other nation held more than $100 billion in ABS as of June 30, 2021, according to the report.

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“Final survey results, which will include additional detail as well as possible revisions to the preliminary data, will be reported on April 29, 2022,” the Treasury report states. “The survey was undertaken jointly by Treasury, the Federal Reserve Bank of New York, and the Board of Governors of the Federal Reserve System.”

The total value of all foreign holdings of U.S. securities, including long-term securities and debt, equities, asset-backed securities and short-term debt securities, stood at $27.289 trillion as of June 30, 2021, up from $21.954 trillion as of the same date a year earlier.

The five leading nations holding U.S. securities across all categories, the Treasury report shows, are Japan, $2.767 trillion; the United Kingdom, $2.631 trillion; the Cayman Islands, $2.467 trillion; Luxembourg, $2.301 trillion; and Canada, $1.977 trillion. (China ranks sixth, with $1.575 trillion, trailed closely by Ireland, at $1.503 trillion.)  

The total value of all U.S. securities held by “foreign official institutions” (government agencies) as of June 30, 2021, was $6.489 trillion, or about 24% of all foreign holdings, the report shows. 

The same figure for asset-backed securities as of that date, however, was $645 billion, representing 41.2% of all foreign ABS holdings, the Treasury report show. 

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