2 Reasons Why China Recently Dumped Treasuries

December Treasury International Capital (TIC) data was semi-calamitous for the United States Treasury due to China’s year-end retraction of Treasuries. Maintaining quantitative easing and stepping in, the Federal Reserve became the largest financier of the U.S. government’s deficit in 2013. In total, the U.S. government issued a net US$ 759 billion in Treasury securities to the public with the Federal Reserve buying a net US$ 543 billion of that amount.

The CIC’s new chairman and CEO, Ding Xuedong, reiterated in talks with the American press that he believes infrastructure investments will be a major theme in all markets.

The largest foreign creditor of the United States is China. Holdings of U.S. Treasuries by China fell by the highest magnitude in 2 years, offloading some US$ 48 billion in paper. These levels of Beijing’s Treasury holdings mimic March 2013 figures. To fill the void at year-end, Belgium (some say as a European Union proxy) greatly augmented Treasury purchases which led to aggregate growth in moving foreign holdings to US$ 5.79 trillion.

SAFE and TIC data
Sources: China’s State Administration of Foreign Exchange and U.S. Treasury TIC Data

#1 Diversification – Fear of Rising Rates

Clearly, Beijing is attempting to diversify its reserves from holding government debt, especially U.S. debt. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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