China unloads more US Treasury bills as odds of Fed rate cuts grow slim
“Beijing is concerned about the impending rate reductions in the US, which will affect returns.”
Is bigger better? What’s the state of China’s US$3 trillion forex war chest?
The US dollar index reached a six-month high of 106 on Wednesday.
Beijing, vigilant in the protection of its overseas assets, has slashed its holdings of US Treasury bills by 25 per cent since early 2021 to the tune of US$280 billion.
Analysts said China’s moves to diversify its assets are in keeping with rapid changes to geopolitics and its erratic relations with the US.
Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, said further sell-offs are possible even though US Treasury Secretary Janet Yellen brought up the issue with her Chinese counterparts during an official visit earlier this month.
“I think the minute she said that the US wouldn’t take ‘anything off the table’ in response to China’s overcapacity, [Beijing] wanted to give a signal that they were serious about dumping US Treasuries,” she said.
Garcia-Herrero noted that the combined holdings of Europe and Japan are bigger than China’s, meaning the US “could mitigate the sell-off” without “a major impact”.