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According to data from the US Treasury Department, the Chinese government divested approximately 18.9 billion dollars in US treasury bonds between February and March 2024. While many countries increased their purchases of US bonds during this period, China’s reduction of its holdings was notable. Experts suggest this development could have significant implications for the global financial system and the US economy.
China’s Bond Sales
China’s latest major sale of US treasuries confirms a continuing trend of decreasing its holdings in recent years. Since 2018, China’s US treasury portfolio has been experiencing a steady decline. Despite many countries purchasing US bonds in March, China’s decision to reduce its portfolio was closely observed by the markets.
During the same period, the United Kingdom increased its acquisition of US treasuries, surpassing China for the first time in history to become the US’s second-largest foreign bond investor. Japan retained its position as the largest foreign investor in US treasury bonds, with 1.13 trillion dollars. The Cayman Islands also claimed the fourth position with 455 billion dollars.
Expert Opinions and Trade Balance Impact
Macroeconomic expert Luke Gromen suggested that this development could lead to complex outcomes for the US trade balance and economic policies. A debate has emerged over whether countries lending to the US can simultaneously purchase more US treasuries and goods from the US.
Luke Gromen: “Compared to March, foreign holdings of US treasuries increased by 133 billion dollars. Of this rise, 86 billion dollars originated from the UK, Cayman Islands, and Canada, while China sold 19 billion dollars. In March, for the first time in history, the UK became the US’s second-largest foreign creditor. The Cayman Islands, with a population of approximately 73,000, now stands as the US’s fourth-largest foreign creditor. How will countries continue to buy US treasuries while also buying more products from the US?”
Some analysts point out that China has been reducing its share of US treasuries for years. This situation may be linked to possible changes in China’s foreign policy or its relations with the US. Simultaneously, the increased interest of other developing countries and financial centers in US assets is noteworthy.
Global Bond Market
For the first time in March, the total stock of US treasury bonds held by foreigners reached a record 9.05 trillion dollars. This development’s impact on the US’s long-term financing costs and sovereignty risks is being debated in the markets. The increase in bond stocks among financial centers like the UK and Cayman Islands introduces a new landscape in asset distribution.
Experts believe that the heavy purchase of US treasury bonds by some countries may create certain challenges in simultaneously boosting demand for goods and services from the US. Therefore, new pressures may arise on the US’s trade policies and financing strategies.
Significant shifts in the portfolios of major economic players could be determinative in the global role of the dollar and meeting US financing needs. China’s bond sale raises new questions regarding the status of the dollar as a reserve currency and its relations with the global economy. The impact on cryptocurrencies will be even more complex.
These changes in assets within the global economy necessitate new strategy and risk management approaches for investors, policymakers, and central banks. Particularly, fluctuations in bond transactions between major economies like the US and China are followed as significant developments for the future of the international financial system.
