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China has cut its holdings of US debt to the lowest level in two years



The Treasury Department in Washington, D.C.

Adam Jeffery | CNBC

As trade tensions with the U.S. intensified, China sold off its Treasury holdings at the fastest pace in about two years during March.

$ 20.5 billion, just below $ 20.5 billion, slightly lower than $ 1.12 trillion. But the move represents a continued pattern of declines that comes as the two sides have been unable to hammer out a long-term trade agreement and instead have been engaging in a tit-for-tax tariff that has been escalated in recent days. ] In the 1

2-month period ending March, the latest month for which data is available, China's stockpile of US Government notes, bonds and bills fell by $ 67.2 billion, a 5.6% decline. The total has fallen by some $ 200 billion since the peak in 2012 and now represents 7% of total U.S. debt outstanding, compared to 12% previously, according to UBS.

The threat of the nation either not buying Treasurys or engaging in outright sales has shaken the bond market before.

More aggressive actions to cut holdings are considered a nuclear option that could further aggravate ongoing trade negotiations.

] The impact, though, or any such moves is unclear.

UBS estimates that the reduction is gradual, the most likely would result in a benchmark 10-year Treasury yield or at most 0.4 percentage points. "To the extent that China's Treasury sales could be either the cause of the effect of a more risk-averse global environment, the positive impact on Treasury yields could be smaller than estimated if private investors step up their Treasury purchases," UBS strategist Chirag Mirani and others in a note to clients

China's share of total US Japan compared to other global government declined to 17.3%, the lowest since June 2006. Japan is the second largest holder, with $ 1.08 trillion, while the UK stepped into third place as it increased its level to $ 317.1 billion.

Foreign government ownership of US Debt hit a fresh record of $ 6.47 trillion, up 4% from a year ago, as the government's total debt continues to swell and now has topped $ 22 trillion. Foreign residents increased their holdings by $ 23.9 billion.


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