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China dumps largest amount of US Treasury and Agency Debt in history

China dumps largest amount of US Treasury and Agency Debt in history

With economic relations between China and the United States continuing to raise investor interest, China has deviated from historical norms by offloading one of the largest amounts of US Treasury and agency debt.

Particularly, in the first quarter of 2024, China offloaded a record-breaking $53.3 billion of U.S. Treasuries and agency bonds.

Notably, China, traditionally a major holder of US debt, reduced its Treasury holdings by $22 billion during the first three months of 2024, while the remainder of the offloaded assets comprised agency bonds, according to data provided by Bloomberg on May 16.

China offloading of Treasury and US Agency Debt chart. Source: Bloomberg

It remains unclear what drove China’s decisions, but the move could have several implications for global financial markets. It reflects a possible shift in China’s global investment patterns and diversification as the country potentially reassesses its holdings amid geopolitical uncertainties.

Possible China diversification

This potential diversification correlates with a period during which the Chinese central bank emerged among institutions, leading to the accumulation of gold. 

As reported by Finbold back in April, in 2023 alone, China’s gold reserves surged by over 225 tonnes. Notably, the country has consistently boosted its gold holdings for 17 consecutive months. This comes at a time when a previous Finbold report indicated that China’s debt grew significantly faster than the US over a 12-month period. 

Indeed, economic tensions between China and the US are escalating, raising questions about stability. These renewed tensions have emerged following President Joe Biden’s announcement of sweeping tariff hikes on various Chinese imports. The new tariffs are part of a broader strategy to counteract what the US administration perceives as China’s unfair trade practices.

On the other hand, presidential candidate Donald Trump has suggested that, if re-elected, he might impose tariffs exceeding 60% on Chinese goods.

Therefore, there remains a high possibility that the offloading of US Treasury and agency debt could speed up in the coming months ahead of the presidential elections. 

At the same time, it will be interesting to monitor how China proceeds, considering that the Federal Reserve is highly projected to cut interest rates soon. 

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