China decreased its holdings of US Treasuries to $633.4 billion in June, marking the lowest level since September 2008. This reduction from $659.3 billion in May is part of Beijing's broader strategy to diversify its foreign exchange reserves, driven by heightened geopolitical tensions and uncertainty surrounding the US policy outlook, including changes in Federal Reserve leadership.
This move by China reflects a long-term strategy rather than short-term currency intervention. China has been gradually reducing its reliance on US government debt for years, also increasing its gold purchases. Geopolitical factors, such as the freezing of Russia's reserves, have influenced this diversification, highlighting the risks of assets exposed to Western financial systems.
Overall foreign holdings of US Treasuries also declined to $9.299 trillion in June from $9.371 trillion in May. The decrease is attributed to a mix of valuation changes, currency movements, and custodial accounting effects. Despite the decline, foreign investors still bought a net of $6.8 billion in Treasuries in June and significantly invested in other US assets, including $35.6 billion in corporate bonds and $181.4 billion in equities, indicating a reallocation within US markets rather than a complete retreat.
US Treasury yields have climbed to multi-year highs, with 30-year and 10-year yields facing pressure due to concerns over Washington's fiscal sustainability. This rise in yields, while making Treasuries more attractive to some investors, also signals increased borrowing costs for the US government. Analysts note a push-and-pull dynamic where concerns about US debt drive yields higher, which in turn attracts buyers.
