China reduced its holdings of US Treasury securities to an 18-year low in July as foreign investors continued to trim their exposure to US government debt amid concerns over rising borrowing costs and the sustainability of Washington’s finances.
China’s Treasury holdings fell to US$618 billion in July from US$633.4 billion in June, according to data released by the US Treasury Department.
The July figure was China’s lowest reported level since August 2008, when its holdings stood at about US$573.7 billion.
China has been steadily reducing its exposure to US government debt for more than a decade. Its Treasury holdings peaked at nearly US$1.32 trillion in November 2013 before beginning a longer-term decline.
The latest reduction came as overall foreign holdings of US Treasuries also fell for a second consecutive month. Foreign investors held about US$9.25 trillion in US government debt at the end of July, down from US$9.3 trillion in June.
The decline comes amid a broader sell-off in global bond markets. US Treasury yields have risen as investors assess inflation, government borrowing and the outlook for interest rates.
The yield on the benchmark 10-year US Treasury note briefly reached a 19-year high this week, reflecting increased pressure across longer-term government bonds.
China’s reduction in Treasury holdings is part of a broader effort to diversify its foreign-exchange reserves. Beijing has increased its holdings of other assets, including gold, while reducing its reliance on US dollar-denominated government securities.
The shift also reflects wider concerns among international investors about US fiscal policy and the country’s growing government debt.
China is now the third-largest foreign holder of US Treasuries, behind Japan and the United Kingdom. Its holdings have fallen substantially from their peak as Beijing has gradually reduced its exposure to US government debt.
Analysts have noted that the decline does not necessarily mean China is abandoning US assets altogether. Treasury holdings can also be affected by reserve-management decisions, exchange-rate movements and the use of overseas custodians that may make the full scale of a country’s holdings difficult to measure.
The reduction comes as Washington faces higher borrowing requirements and investors demand greater returns to hold longer-term government debt.
For global markets, continued reductions by major foreign holders could add to pressure on US borrowing costs, although Treasury demand is influenced by a wide range of domestic and international investors.
China’s latest figures therefore highlight both Beijing’s continuing diversification of its reserves and the broader challenges facing the US Treasury market as investors reassess government debt, interest rates and global financial risks.
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