Bundles of chinese yuan (Photographer: SeongJoon Cho/Bloomberg)

China Holdings of Treasuries Slump to Lowest Level Since July

(Bloomberg) -- China’s holdings of Treasuries fell to a four-month low even as its foreign-exchange holdings increased in November, in a potential sign the world’s second-largest economy is curbing its appetite for U.S. government debt.

China’s Treasury holdings are attracting extra attention after Bloomberg News reported last week the government was considering tapering its purchases of U.S. government debt. A pullback by America’s largest foreign creditor could put upward pressure on interest rates just as tax cuts may increase the U.S.’s need to issue more Treasuries to fund the deficit.

China’s holdings of U.S. bonds, notes and bills decreased 1.1 percent $1.18 trillion in November from the previous month, according to Treasury Department data released Wednesday in Washington. That was the second monthly drop in three months.

China remained the biggest foreign holder of U.S. Treasuries, ahead of Japan, which owned $1.08 trillion, down 0.9 percent from October and the lowest level in more than four years. That was the fourth straight month of decline in Japan’s holdings.

China Holdings of Treasuries Slump to Lowest Level Since July

The two countries account for about a third of all foreign ownership of Treasuries, which were little changed at $6.34 trillion in November, the figures showed.

The news on China’s possible plan to ease Treasury purchases fueled speculation that the country was sending a warning shot to the Trump administration that it has retaliation options in a trade dispute. China’s State Administration of Foreign Exchange pushed back against the story, saying it may have cited incorrect sources.

It’s probably too soon to know whether such recommendations will be followed, especially considering that the Treasury report reflects a single month from last year, Thomas Simons, senior economist at Jefferies LLC, said Wednesday before the data was released.

China has been rebuilding foreign-exchange reserves and restricting capital outflows in an effort to stabilize the yuan, which has has extended gains by 1.1 percent this year after adding 6.7 percent in 2017. The country’s foreign-exchange reserves rose for an 11th straight month in December, climbing to $3.14 trillion.

The following table lists foreign transactions of U.S. securities, ranked by the countries with the most activity during the past month. All tables are in billions of U.S. dollars.

Foreign Transactions in U.S. SecuritiesNov 2017Nov 2016Difference
- United Kingdom31.8619.1212.74
- Cayman Islands19.63-7.7127.34
- Canada10.17-$358 Mln10.53

For further analysis, see China cuts Treasuries holdings; foreign buying in U.S. rises.

©2018 Bloomberg L.P.