China’s US Treasury holdings sink to lowest level in two years

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China’s Treasury holdings fell to their lowest level in two years in April, heightening concerns about the impact of the Sino-American trade war on the largest foreign creditor to the US government.

The country’s holdings fell $7.5bn to $1.1tn, their lowest level since April 2017.

Investors and analysts have speculated that China may weaponise its large portfolio of US Treasuries, selling down its holdings in an attempt to tamper with US interest rates, driving them higher. But such a drastic course of action is still seen as an unlikely outcome; not only would it also harm the value of China’s holdings, but there are few other markets perceived to be large enough to absorb the country’s sizeable investments.

The fresh selling activity came before the trade dispute between Beijing and Washington intensified in May. Except for a small net purchase in February, China has now sold Treasuries every month since September 2018.