Sunday, 06 March 2016 00:00

Is China Dumping US Treasuries?

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There is no doubt that China has been diversifying its reserves and I recently wrote an article that pointed to aggressive buying of gold by central banks of China and Russia. There has also been lot of discussion on China potentially doing away with US Treasuries. It would therefore be interesting to put forward data on China’s holdings of Treasuries along with other major foreign holders of US Treasury bonds.

As of December 2015, foreigners held $6.2 trillion worth Treasuries and that accounts for approximately 33% of the total federal debt outstanding.

The chart below shows the top 5 holders of US Treasuries.

Top Foreign Holders of US Treasuries

China still remains the largest foreign holder of US Treasuries followed by Japan. However, a more important analysis would be to check how China’s holdings of US Treasuries have changed over time.

The chart below shows China’s holdings of US Treasuries from February 2011 to December 2015.

Chinas Holdings Of US Treasuries 2011 to 2016

Clearly, in the last five years, China’s holdings of Treasuries have largely remained stagnant. While China is diversifying its currency reserves, there is no evidence from this data of any sustained selling of Treasuries.

Another important point to note in this analysis is that foreign holdings of US Treasuries touched $6.0 trillion in June 2014. Over the next 18 months, foreign holdings of US Treasuries have increased by only $200 million to $6.2 trillion as of December 2015.

The point that I want to make here is that foreign investors might not have sold Treasury holdings, but I don’t see a scenario where foreign holdings increase in the coming years.

Most of the US federal debt increase will be financed by debt monetization. The Federal Reserve already holds $2.5 trillion in US Treasury securities.

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