China’s holdings of US Treasuries dropped to the lowest levels in two years after China dumped $47.8 billion in paper—equal to about 3.6% of its
Treasury holdings as of November—bringing its total holdings to $1.27 trillion. Not that this should come as a shock. Yi Gang, a deputy governor of China’s central bank, hinted at the move when he announced in late November that the country no longer benefits from increasing its foreign reserves.
Though this news is likely to stoke fears of a US bond market sell-off, it’s way too early to judge whether this is a fluke or a new PBoC strategy. If China continues to slash its Treasury holdings, that could be grim tidings indeed for the US Treasury market, especially with the Federal Reserve also winding down its bond-buying, as BNP Paribas’s Aaron Kohli told Caijing. (Note also that even as China and Japan offloaded US Treasury securities, overall foreign holdings of US Treasuries increased ever so slightly, thanks largely to a $56-billion Belgian splurge.)