China & Japan lead global dumping of US sovereign debt

The two biggest foreign holders of America’s sovereign debt pared their holdings in October, according to the latest data released by the US Treasury Department. Foreign holdings of US Treasuries have fallen to a one year low.

China’s holdings of notes, bills and bonds fell to $1.14 trillion in October compared to $1.15 trillion in the previous month, marking the lowest level since May 2017. The world’s second-largest economy had been slashing its holdings for a fifth consecutive month.

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Japan seems to have followed the lead. The second biggest holder of the US state-issued bonds cut its share to $1.018 trillion against $1.028 trillion in September, marking the third consecutive month of reduction.

China is still the biggest foreign holder of the US foreign debt and has been gradually reducing its purchases of the US Treasury bills over the past year as the unceasing trade dispute between Beijing and Washington is putting intense pressure on Chinese stocks and national currency.

After accusing Beijing of unfair trade and stealing US technologies, Washington introduced import tariffs on $253 billion worth of Chinese goods, and threatened Beijing with an additional $267 billion in levies. In response, Beijing imposed tariffs on $110 billion of US goods, hitting mostly US agricultural producers.

Last week, the Chinese Finance Ministry pledged to abolish 25 percent tariffs on 116 vehicles and car parts and five percent tariffs on other auto-related items from January 1 through to the end of March 2019. The measure comes as part of a 90-day truce reached by US President Donald Trump and Chinese President Xi Jinping during their G20 meeting in early December.

“Japan is reducing its holdings of Treasuries because on a currency-hedged basis, dollar holdings are not very attractive for them from a yield pick-up perspective,” Gennadiy Goldberg, interest rates strategist at TD Securities, told Reuters.

All in all, foreign holdings of Treasury securities fell by more than $60 billion, marking the largest monthly decline since November 2016. An extensive decline in foreign demand for US government securities has recently become a hot issue as Washington is increasing issuance of debt. It has caused concerns that the declining number of overseas investors might put upward pressure on US interest rates.

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