What is behind the 40% drop in China's U.S. Treasury holdings? (2024)

FAQs

What is behind the 40% drop in China's U.S. Treasury holdings? ›

China is facing serious capital flight caused by rising concern about its economic growth and debt burden. In September, capital outflows reached $75 billion, the biggest such monthly amount since 2016, according to an estimate by Goldman Sachs.

China has offloaded USD 22.7 billion US treasury bills recently over concerns over security and a further delay to expected interest rate cuts by the American Federal Reserve, amidst its intensified strategic rivalry with Washington.

U.S. debt offers the safest haven for Chinese forex reserves, which effectively means that China offers loans to the U.S. so that the U.S. can keep buying the goods China produces.

U.S. Treasury yields retreated on Wednesday after monthly consumer inflation data came in softer than anticipated. The rate on the 10-year note fell about 10 basis points to 4.344%. The 2-year Treasury yield was last at 4.726% after sliding by roughly 9 basis points. Yields and prices move in opposite directions.

If China “dumped” USA treasuries, they would take a serious monetary loss. The price of the treasuries would drop, effective raising the return for those who bought the bonds.

China sold a record $53.3 billion worth of Treasurys and agency bonds in the first-quarter, Bloomberg reported. It previously unloaded US debt to prop up its yuan, which has again grown weak against a rallying dollar. The country is piling into gold, which now makes up the highest share of its reserves since 2015.

How bad is it? China's debt is more than 250 percent of GDP, higher than the United States. It remains lower than Japan, the world's most indebted leading economy, but some experts say the concern is that China's debt has surged at the sort of pace that usually leads to a financial bust and economic slump.

[2] A report by the credit rating agency S&P Global in 2022 estimated that 79 per cent of corporate debt in China was owed by SOEs (the IMF does not break down the proportion of debt owed by SOEs).

The largest holder of U.S. debt is the U.S government. Which agencies own the most Treasury notes, bills, and bonds? Social Security, by a long shot. The U.S. Treasury publishes this information in its monthly Treasury statement.

What country owes the US the most money? ›

All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

The three largest holders of Treasuries -- Japan, China and the UK -- led the purchase U.S. government debt. Japanese investors raised their stash of Treasuries to $1.138 trillion in December, from $1.127 trillion in November, data showed.

Experts reckon yen purchases by the Bank of Japan at the behest of the Ministry of Finance are funded by dollar deposits held by the BOJ, which are later replenished by the sale of very short-dated U.S. Treasurys or even bills.

The Department of the Treasury operates and maintains systems that are critical to the nation's financial infrastructure, such as the production of coin and currency, the disbursem*nt of payments to the American public, revenue collection, and the borrowing of funds necessary to run the federal government.

What causes Treasury bill rates to fall? Keep in mind that economic growth or decline, interest rates and inflation can affect Treasury bill rates. Here's how it works. Demand for T-bills often drops during inflationary periods if the discount rate offered doesn't keep pace with the inflation rate.

"With the Fed raising rates and the dollar going up, yield-insensitive central banks have been selling Treasuries to limit the weakening of their domestic currencies, and yield-sensitive foreign private investors have been buying Treasuries to benefit from higher yields and a rising dollar," Slok noted last month.

It was the largest cut since the rate was introduced five years ago, and a much bigger reduction than economists had expected. The move was another step in China's broad campaign to prop up a crumbling housing market and support an economy battling deflation, slowing exports and moribund consumer confidence.

U.S. Treasury Bonds

In fact, Japan is by far the largest foreign owner of U.S. treasury securities, with Japanese banks, pension funds, insurance companies etc. holding a total of $1.138 trillion at the end of 2023.