China Continues to Sell U.S. Treasuries, Overtaken by Japan and the UK
According to data released by the U.S. Treasury last Friday, China has continued to sell U.S. Treasuries and has now been overtaken by Japan and the UK, falling to the position of the third largest holder of U.S. Treasuries globally. Many believe that China’s reduction in U.S. Treasury holdings in recent years highlights Beijing’s efforts to diversify its reserves and reduce its heavy reliance on the United States. Since the tariff war initiated by Trump, there has been a comprehensive sell-off of U.S. Treasuries, the dollar, and U.S. stocks, making this data particularly noteworthy.
In 2019, China was the largest holder of U.S. Treasuries, but was subsequently surpassed by Japan. The latest data from March shows that the UK has surpassed China for the first time in over twenty years.
Currently, Japan holds $1.13 trillion in U.S. Treasuries, the UK holds $779.3 billion, while China holds $765.4 billion, ranking third.
Image Source: Finance M Square
No Comprehensive Sell-Off of U.S. Treasuries by Global Holders
Since President Trump initiated a radical tariff war and repeatedly accused U.S. economic partners of “cheating” the United States, foreign investor demand has been a focal point of discussions in the bond market. The “Liberation Day” on April 2 triggered a comprehensive sell-off of U.S. Treasuries, the dollar, and U.S. stocks.
However, as of the end of March, there has been no evidence of a comprehensive sell-off of U.S. Treasuries by various governments. In March, the holdings of U.S. Treasuries by Japan, the UK, Canada, and Belgium all increased. China, on the other hand, achieved a net sale of $27.6 billion in long-term U.S. Treasuries.
Japan’s holdings have increased for the third consecutive month, reaching $1.13 trillion. Data shows that Canada’s reserves increased by $20.1 billion, reaching $426.2 billion.
According to market analysts cited by Bloomberg, Belgium’s holdings of U.S. Treasuries include custodial accounts from China. In March, Belgium’s holdings of U.S. government bonds increased by $7.4 billion, reaching $402.1 billion.
The Cayman Islands, seen as a popular registration place for hedge funds and other leveraged investors, increased its holdings by $37.5 billion, reaching $455.3 billion.
China Increases Gold Purchases to Diversify Reserves
Many believe that China’s reduction in U.S. Treasury holdings in recent years underscores Beijing’s efforts to diversify its reserves and no longer rely heavily on the U.S. The People’s Bank of China has been continuously purchasing gold since November last year, which has also contributed to the recent rise in gold prices.
However, former U.S. Treasury official and current Council on Foreign Relations member Brad Setser stated on X that he believes China’s shift is about “shortening the duration of its portfolio, such as increasing deposits, rather than any real moves to rid itself of the dollar.”
Nevertheless, reducing long-term Treasury holdings and increasing short-term liquid dollar assets is not without merit in terms of mitigating risks associated with U.S. Treasuries. Should any changes occur, China can quickly reclaim dollars or cease purchasing short-term Treasuries upon maturity, thus achieving the effect of being able to reduce dollar assets at any time.
The data currently published reflects March, which is prior to the official onset of the tariff war. Whether central banks subsequently reduce their holdings of U.S. Treasuries will likely be revealed in next month’s data release.
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