China Offloads US Treasuries...Holdings Hit 18-Year Low

▲ Treasury bonds, Gold/AI generated image

China's holdings of US Treasury bonds have fallen to an 18-year low. As concerns about the US government's debt sustainability grow, foreign countries continue to sell off US Treasury bonds.

According to the South China Morning Post (SCMP) on September 17 (local time), the US Treasury Department announced that China's holdings of US Treasury bonds decreased from $633.4 billion in the previous month to $618.0 billion as of July. This is the lowest level in approximately 18 years since 2008. As vigilance regarding US fiscal health spreads, the total holdings of US Treasury bonds by foreign investors have also decreased for two consecutive months.

China's reduction in US Treasury bond holdings aligns with its long-term trend of diversifying foreign exchange reserves. Amid escalating US-China tensions, China, wary of the risk of the dollar being weaponized, has been reducing its proportion of Treasury bonds since the Donald Trump administration. In fact, China has fallen to third place in the ranking of foreign holders, behind Japan and the UK.

Conversely, China is steadily increasing its gold holdings, restructuring its safe-haven asset portfolio. To hedge against geopolitical uncertainties and financial risks, the People's Bank of China has been purchasing gold for 22 consecutive months, expanding its gold reserves to 76.73 million troy ounces. This is an asset allocation strategy of filling the space created by offloading US Treasury bonds with physical gold.

In the global bond market, volatility is increasing, with the 10-year Treasury yield again surpassing 5% due to accumulated fiscal deficits and the burden of refinancing. As the de-dollarization and diversification of reserve assets by major central banks accelerate, the demand base for the US Treasury market is being put to the test.

[Article Summary]

-China's holdings of US Treasury bonds decreased to $618.0 billion in July, marking an 18-year low since 2008.

-Amid concerns over US debt sustainability, total foreign holdings of Treasury bonds also decreased for two consecutive months.

-Instead of selling Treasury bonds, China continued to purchase gold for 22 consecutive months, accelerating the diversification of its foreign exchange reserves.

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