BEIJING (Dispatches) - China, who is the largest foreign owner of U.S. debt, sold off its Treasury holdings at the fastest pace in about two years during March, bringing total holdings down to $1.12 trillion.
In the 12-month period ended in March, the latest month for which data is available, China’s stockpile of U.S. 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, while previously it was 12%, according to UBS.
The move represents a continued pattern of declines as the two sides have been unable to forge a long-term trade agreement and remain engaged in a tough tariff fight that has escalated in recent days.
The threat of the country either not buying Treasuries or engaging in outright sales has shaken the bond market before. However, in addition to any punitive action China might take, the sellout is believed to be an effort to defend China’s own currency. The aggressive reduction of holdings could aggravate ongoing trade negotiations between the world’s two largest economies, yet the long-term impact of such moves remains unclear.
UBS estimates that if the reduction is gradual, it likely would result in a rise in the benchmark 10-year Treasury yield of at most 0.4 percentage point.