China trims US Treasury holdings amid Iran war, Fed uncertainty
Beijing cuts exposure to US debt to US$633.4 billion, official data shows, amid broader diversification push
China cut its holdings of US Treasuries to a nearly 18-year low in June, as Beijing continued to diversify its foreign exchange reserves amid heightened geopolitical tensions and growing uncertainty over the policy outlook in the United States.
Holdings fell to US$633.4 billion in June from US$659.3 billion in May, data released by the Treasury Department of the United States showed on Monday. The amount in June marked the lowest level since September 2008, when holdings fell to US$618.2 billion according to Chinese financial data provider Wind.
Meanwhile, overall foreign holdings of US Treasuries dropped to US$9.299 trillion in June from US$9.371 trillion in May.
US-Iran hostilities reignited in June before a tentative ceasefire eased fears of a wider regional conflict, with investors closely watching the risk of renewed fighting, disruptions to oil supplies and their implications for global growth and inflation.
That month also marked Kevin Warsh’s debut policy meeting as the chairman of the US Federal Reserve. The notably brief post-meeting statement, coupled with the new Fed chairman’s decision not to publish a rate forecast – in line with his criticism of forward guidance – left investors with fewer clues about future rate moves.
US Treasury yields have climbed to multi-year highs in recent months, particularly at the long end of the curve, with 30-year and 10-year yields under pressure amid concerns over Washington’s fiscal sustainability.
The 30-year yield rose over 0.04 percentage points to close at 5.31 per cent on Monday, its highest level since June 2007, while the 10-year yield rose over 0.02 percentage points to 4.724 per cent.
Meanwhile, yields on five-year and two-year Treasury notes rose over 0.01 percentage point to 4.376 per cent and 4.182 per cent respectively.
Among other major Treasury holders, Japan, the largest foreign holder of US debt, cut its holdings to US$1.12 trillion in June from US$1.14 trillion in May, while the United Kingdom’s holdings dropped to US$939.9 billion from US$948.6 billion.
Late last month, Washington and Tokyo intervened to stem the Japanese yen’s slide, marking their first joint yen-buying intervention since 1998, with observers widely speculating that US involvement might also help limit selling pressure on US Treasuries.
China slipped to third place among foreign holders of US Treasuries in March last year – behind Japan and the UK – continuing a gradual but uneven retreat that began during US President Donald Trump’s first term amid rising tensions and concerns over the weaponisation of the US dollar.
In contrast to its broader sell-off of US debt, China has steadily added to its gold reserves, widely viewed as a hedge against geopolitical and financial risks.
Official data showed the People’s Bank of China increased its bullion holdings for the 21st consecutive month in July, bringing the total to 76.08 million troy ounces (2.37 million kg).