[Salon] Fwd: SCMP Update: "China joins global sell-off of US Treasuries in March as Iran war prompts panic." (5/19/26)

[Chas Freeman <cwfresidence@gmail.com>]

https://www.scmp.com/economy/china-economy/article/3354028/china-joins-global-sell-us-treasuries-march-iran-war-prompts-panic?module=top_story&pgtype=homepage

China joins global sell-off of US Treasuries in March as Iran war prompts panic

19 May 2026

Mainland Chinese investors shed their holdings of US Treasury bills in March, joining many overseas institutions and central banks amid uncertainties over the US-Israel war on Iran.

Such reductions in Treasury holdings reflected mounting doubts in global markets, analysts said, as the escalating war in Iran fuelled concerns over inflation, energy prices and fiscal pressures, driving Treasury yields higher and overshadowing the likelihood of interest rate cuts from the US Federal Reserve.

In March, the world’s second-largest economy cut its holdings of US Treasuries to US$652.3 billion from US$693.3 billion a month earlier, according to data released by the US Treasury Department on Monday afternoon Washington time.

China remained the third-largest foreign holder despite the reduction. Japan, the largest foreign holder, shaved down its stockpile by US$47.7 billion in March to US$1.192 trillion. Official data showed total foreign holdings of US Treasuries fell to US$9.35 trillion, down from US$9.49 trillion in February.

Robin Xing, chief China economist at Morgan Stanley, said the repricing of Fed cuts amid an oil-driven inflation has pushed yields higher, triggering a mark-to-market valuation loss while prompting global investors to turn more cautious on rates.

“We’re seeing global institutional investors currently favouring equities while staying broadly equal or underweight on government and credit bonds,” Xing said before the data release.

He also noted that the conflict had disrupted shipping and temporarily reduced the oil surplus of Middle East exporters, weakening their capacity to buy US debt.

March marked the first full month in which the effects of escalated Middle East tensions could be observed, with the US-Israel war on Iran disrupting maritime supply chains, driving up energy prices and rattling bond and currency exchanges.

The benchmark 10-year US Treasury yield climbed to 4.32 per cent by the end of the month as investors repriced inflation.

Seven of the top 10 foreign holders of US Treasuries, including Japan, Belgium, Canada and France, trimmed their exposure to US government debt that month.

The second-largest holder, Britain, increased its holdings to US$926.9 billion, up from US$897.3 billion in February. The Cayman Islands and Ireland also made small increases.

While market players are a major factor in the shift away from US dollar-denominated assets, Chinese authorities have also stepped up their efforts to diversify the country’s foreign exchange reserves.

In March 2025, China slipped to third place among foreign holders of Treasuries, continuing a gradual, intermittent, retreat that began during US President Donald Trump’s first term.

The People’s Bank of China has increased its gold holdings – widely viewed as a hedge against geopolitical and financial risk – for 18 consecutive months, lifting its reserves to 74.64 million ounces as of April.

“For China, this is part of a long-term, gradual process to diversify its sovereign asset allocation and reduce overexposure to a single currency or a single asset class,” Xing noted.

However, he said, a sudden, massive dump of US assets is unlikely, as the US dollar remains “the deepest and most liquid financial market globally”, adding that alternative currencies like the euro or yen face their own structural headwinds.