China reduced its holdings of US Treasuries to an 18-year low in July, highlighting a broader retreat by foreign holders of American government debt as concerns over the sustainability of Washington’s finances continued to weigh on the market.
China’s holdings fell to US$618 billion in July from US$633.4 billion in June, according to data released by the US Treasury Department on Wednesday. The July figure was the lowest recorded since August 2008, when Chinese holdings fell to US$573.7 billion, according to Chinese financial data provider Wind.
The reduction came as total foreign holdings of US Treasuries also declined for a second consecutive month. Foreign countries held US$9.25 trillion in US government debt in July, down from US$9.3 trillion in June, the Treasury Department said.
The retreat has taken place against a backdrop of persistent concerns over the sustainability of Washington’s finances. Investors have demanded greater compensation for holding US government debt over longer periods, contributing to continued pressure on long-term Treasuries. Thirty-year Treasury yields reached their highest level since 2007 during July, reflecting the strain in the longer-dated bond market.
Market pressures were also evident in currency markets. In late July, Washington and Tokyo intervened to stem the Japanese yen’s slide, marking their first joint yen-buying intervention since 1998. Observers widely speculated that US involvement could also help limit selling pressure on US Treasuries.
The movements among major foreign holders were uneven. Japan, the largest foreign holder of US debt, reduced its Treasury holdings to US$1.1 trillion in July from US$1.12 trillion in June. By contrast, the United Kingdom increased its holdings to US$998.3 billion from US$939.9 billion, official data showed.
Efforts to support the long-term Treasury market have so far coincided with continued upward pressure on yields. The US Treasury Department said last week that it would buy back up to US$6 billion of long-dated debt, a move widely seen as an attempt to support the market and ease pressure on longer-term yields. Nevertheless, the 10-year Treasury yield climbed above 5 per cent on Monday, its first move above that level since 2023, and has remained around that mark.
For China, the reduction in Treasury holdings represents part of a gradual but uneven retreat from US government debt. China slipped to third place among foreign holders in March last year, behind Japan and the UK. The shift has continued a trend that began during US President Donald Trump’s first term, when rising tensions between Washington and Beijing intensified concerns over the potential weaponisation of the US dollar.
At the same time, China has steadily increased its gold reserves, in contrast to its broader reduction of US debt holdings. Gold has been widely viewed as a hedge against geopolitical and financial risks.
Official data showed that the People’s Bank of China increased its bullion holdings for the 22nd consecutive month in August, bringing its total gold reserves to 76.73 million troy ounces. The contrasting movements in Treasuries and gold underline the changing composition of China’s reserves as global investors continue to reassess exposure to US government debt.
