China Cuts US Debt Holdings to Lowest in 2 Years Amid Trade Tensions

As trade tensions with the U.S. intensified, China sold off its Treasury holdings at the fastest pace in about two years during March.

The largest foreign owner of U.S. debt reduced the level by just shy of $20.5 billion, a slight decrease that brought the total holdings down to $1.12 trillion. But the move represents a continued pattern of declines that comes as the two sides have been unable to hammer out a long-term trade agreement and instead have been engaging in a tit-for-tat tariff fight that has escalated in recent days.

In the 12-month period ending March, the latest month for which data is available, China’s stockpile of U.S. government notes, bonds and bills fell by $67.2 billion, a 5.6% decline. The total has fallen by some $200 billion since the peak in 2012 and now represents 7% of total U.S. debt outstanding, compared to 12% previously, according to UBS.

The threat of the nation either not buying Treasurys or engaging in outright sales has shaken the bond market before. In addition to any punitive action China might take, it is thought to have reduced its holdings in an effort to defend its currency.

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