The biggest U.S. foreign creditor bought $23 billion worth of Treasury debt in October, bringing its official holdings of U.S. bonds to $907 billion. The latest Chinese purchases came in a month when foreign fund flows into the United States slowed to their weakest  pace since they were essentially flat in January.

All told, foreigners bought a net $7 billion of U.S. long-term securities, Treasury said in its latest international capital report. That’s down from $55 billion in September and $99 billion in August.

Even so, this has been a banner year for foreign acquisition of U.S. assets, with foreigners having bought $642 billion worth of U.S. stock and debt over the past 12 months. That’s a more than tenfold increase from last year. A report released last week by the Federal Reserve shows overseas accounts now hold nearly half of outstanding Treasury debt.

The latest report covers October, a month that saw a six-month flood of capital into Treasury bonds and other fixed-income assets do a U-turn. The yield on the 10-year Treasury note has risen by more than a percentage point off its lows of the month, as investors have started betting on a stronger global recovery and inflation chatter, however far-fetched for now, has grown louder.

Though the interest rate rise has naturally aroused speculation that investors are fleeing from the latest sign of runaway U.S. spending, the tax cut deal unveiled last week by the White House and congressional Republicans, some bond watchers have been thinking down a different path.

Consider this recent musing from David Kotok, who runs the Cumberland Advisors investment adviser in Vineland, N.J. He notes the similar rises in government bond yields over recent weeks in places as diverse as Japan and Germany, and asks:

If all benchmark 10-year debt is selling off by about the same amount in price change, could it be that this selling is the reallocation of globally indexed funds away from sovereign debt and into something else?

Think of yourself as a Persian Gulf fund.  You usually hold foreign sovereign debt in proportion to an index or benchmark.  Now you want to reduce your exposure to some of the countries in the index.  You either have to sell proportionately from all of the countries in the index or you will face a concentration that violates your index or benchmark.  Worldwide sell-off in benchmark sovereign debt suggests this reallocation is underway.  Otherwise, how can you account for the Japanese government bond, the German Bund and the US Treasury note all moving in a correlated way?

Quite the question.