Treasury Department in Washington, D.C.
Adam Jeffery | CNBC
As trade tensions with the US intensified, China sold its treasury stocks at the fastest pace about two years in March.
The largest foreign owner of US debt reduced the level by just shy of $ 20.5 billion, a slight decline that brought the total inventory down to $ 1.12 trillion. But the movement represents a continued pattern of declines that come as the two sides have not been able to hammer out a long-term trade deal and have instead been engaged in a tat tariff campaign that has escalated in recent days. [1
The threat that the country does not buy Treasury or engage in direct sales has shaken the bond market before. In addition to any criminal action that China can take, it is believed to have reduced its holdings to defend its currency.
Several aggressive inventory reduction measures are considered a nuclear alternative that can further aggravate ongoing trade negotiations. [19659002
UBS estimates that if the reduction is gradual, it will likely lead to an increase in the benchmark portfolio of 10 years, with a maximum of 0.4 percentage points.
"To the extent that China's treasury sales can be either the cause or effect of a more risky global environment, the positive effect on government bonds may be less than estimated if private investors increase their treasury purchases," UBS strategist Chirag Mirani and others said in a note to clients.
China's share of total US debt versus other global government declined to 17.3%, the lowest since June 2006. Japan remains the second largest holder, with $ 1.08 trillion, while Britain stepped back third place when it increased the level to $ 317.1 billion.
The foreign governments' share of US debt hit a new record of $ 6.47 billion, an increase of 4% from the previous year, as the government's total debt continues to swell and has now peaked at $ 22 trillion. Foreign residents increased their holdings by $ 23.9 billion.