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Home / Business / China's treasury holdings fell to a two-year low – here's why investors shouldn't worry

China's treasury holdings fell to a two-year low – here's why investors shouldn't worry



Foreign holdings of US government bonds issued late Wednesday showed concern among concerns that Beijing could move to sell part of the Treasurys store as a retaliatory measure against Trump's administration rates.

But market participants say that the US Treasury Department's March foreign inventory data actually demonstrated why China's dumping US government paper would be one of the more ineffective forms of retaliation in a trade dispute. Instead, an increase in the total foreign holdings emphasized the appetites of port enterprises as government securities during periods of uncertainty or turmoil.

"Treasurys are still one of the best seas for investors," said Marvin Loh, global macro strategist at State Street, who said foreign investors had few choices in terms of positive returns.

The titled Treasury International Capital Report showed that China's stock of US government bonds fell by $ 1

0 billion to a two-year low of $ 1.12 trillion in March, marking its first four-month decline.

Some investors have raised concerns that People's Bank of China will dump some of the Treasury's holdings, the backbone of foreign exchange reserves, in an attempt to increase US federal government's borrowing costs when Washington faces annual deficits of over $ 1 trillion. Such fears were due earlier this week after an editor of the Global Times, a Chinese state newspaper, tweeted that there were discussions in China about selling Treasurys to fight back to the Trump administration tariffs.

. : 4 reasons why China will not use "core" to sell Treasurys to oppose the United States

. Despite the fact that the US's largest creditor selling a piece of its treasury hoard, the total value of US government bonds from foreign central banks, government bonds, and foreign government institutions rose by $ 45 billion to $ 4.07 billion in March.

And on a wider scale of foreign businesses that include private investors, ownership of Treasurys increased by $ 88 billion, the largest monthly increase since September 2011.

Jon Hill, an interest rate strategist at BMO Capital Markets, wrote that the increase in Foreign acquisitions may have led to government bond prices rising, and their dividends falling at the end of the first quarter.

During that month, it gives the 10-year government bond yield

TMUBMUSD10Y, + 1.41%

sank around 30 basis points to 2.42% at the end of the month. Since then, the benchmark index has traded around 2.40%. Bond prices are moving in the opposite direction of dividends.

And it can be difficult to decipher China's motivations behind basically reducing Treasury holdings.

Brad Setser, an expert on capital flows and an older member of the External Relations Council, tweeted that China may have only recycled the proceeds of selling Treasurys to other creditworthy securities as a bond loan agency.

Read : Foreign central banks snatch up US home loans by long term

I if so, Beijing will diversify its portfolio of foreign exchange reserves, a mover that would have little impact on the US exchange rate with the Chinese yuan

USDCNY, + 0.1120%

Setser said that the country's foreign exchange reserves and the yuan were largely unchanged in March, the month when China's Treasury stocks fell.

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