Less than in October last year! China reduced its holdings of U.S. bonds for three consecutive months and its holdings hit a 15-year low in March

Finance Associated Press

2024-05-16 12:32Published on the official account of Cailianshe under Shanghai Poster Industry Group

Finance Associated Press, May 16 (edited by Xiaoxiang) On Wednesday (May 15), local time, the U.S. Department of the Treasury released the International Capital Flows Report (TIC) for March 2024. According to the report, as the price of U.S. bonds fell sharply in the first quarter, major overseas "creditors" of the United States increased their positions in U.S. Treasuries in March. However, China, as the second largest overseas "creditor" of the United States, still chose to further reduce its holdings that month, and the total position size has fallen to a 15-year low!

China's holdings of U.S. Treasuries fell by $7.6 billion to $767.4 billion in March, the report showed, marking the third consecutive month of decline in holdings since January 2024.

Since April 2022, China's holdings of U.S. Treasuries have been below $1 trillion. After the latest reduction in March, China's total holdings of U.S. bonds have fallen below the low of $769.6 billion in October last year, further hitting a new low since March 2009.

Historically, the peak of China's holdings of U.S. debt dates back to November 2013, when it reached $1.32 trillion. Compared with this historical peak, China's U.S. bond holdings have fallen by 549.3 billion yuan, a drop of 42%.

Analysts said that the move to reduce U.S. bond holdings is in line with the general trend of diversification of China's overseas asset allocation.

A set of comparisons shows that while reducing its holdings of US bonds, China's central bank is continuing to buy gold in large quantities. As of the end of April this year, the size of China's central bank gold reserves had reached 72.8 million ounces, up 60,000 ounces from the previous month and increasing for 18 consecutive months.

According to a previous report by the World Gold Council, the wave of global central bank purchases of gold since last year has become a key factor driving the rise in gold prices. Among them, the increase in the size of China's central bank's gold reserves is second to none among the central banks that have disclosed relevant information.

The overall size of U.S. bond holdings by overseas "creditors" continued to record

Overall, when all U.S. overseas "creditors" are included, foreign investors' holdings of U.S. Treasuries rose for the sixth consecutive month to $8.091 trillion in February, up from a revised $7.971 trillion in February and a new record high.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York, said, "It was a pretty strong month for U.S. Treasury buying – the biggest overseas buying in three months. After two consecutive months of higher US Treasury yields, we are seeing some signs of stabilization. This encouraged a lot of buying. ”

Specifically, Japan increased its holdings of U.S. Treasury bonds by $19.9 billion in March, reaching $1,187.8 billion, the highest since August 2022, and continuing to be the largest overseas bondholder in the United States.

Market participants have been watching Japan's government bond holdings lately as the country's monetary authorities threaten to intervene to shore up the yen, which briefly fell to a 34-year low of 160.24 against the dollar on April 29. The Bank of Japan, which acts on behalf of Japan's Ministry of Finance, eventually intervened earlier this month to stem the yen's exchange rate from slipping, although it remains to be seen whether this month's intervention will use its U.S. Treasury holdings.

Among the top 10 U.S. overseas "creditors", apart from China, only Belgium and France reduced their holdings in March. The UK increased its holdings of U.S. Treasuries by $26.8 billion to $728.1 billion in March, still ranking third in terms of holdings.

The yield on the benchmark 10-year Treasury note was around 4.182% at the start of March and 4.194% at the end of the month, up only slightly by 1.2 basis points – almost flat, suggesting that the sell-off in Treasuries at the beginning of the year has eased during the month. By contrast, the yield on the 10-year Treasury note was up nearly 39 basis points at the end of February from the beginning of the month.

Other highlights from the TIC report:

The U.S. Treasury Department's International Capital Flows Report (TIC) also showed that all foreign net inflows into U.S. long- and short-term securities and bank flows amounted to $102.1 billion in March. Among them, the net inflow of foreign private funds was US$30.3 billion, and the net inflow of foreign official funds was US$71.7 billion.

In March, foreign residents increased their holdings of long-term U.S. securities – net purchases of $178.4 billion. Among them, the net purchase of foreign private investors was $152.2 billion, while the net purchase of foreign official institutions was $26.2 billion. U.S. residents also increased their holdings of long-term foreign securities, with net purchases of $78 billion.

Taking into account both international and U.S. long-term securities, overseas net purchases of U.S. long-term securities in March amounted to $100.5 billion.

Foreign residents increased their holdings of short-term U.S. Treasuries by $600 million in March, while foreign residents' holdings of dollar-denominated short-term U.S. securities and other custodial liabilities decreased by $23.7 billion. The U.S. banking system's own net liabilities to foreign residents in dollar terms increased by $25.3 billion.

(Finance Associated Press Xiaoxiang)

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