China Cuts US Treasury Bond Holdings for 7th month

China reduced its holdings of US Treasuries for a seventh straight month in June, according to Treasury Department data released on Monday, with investors closely watching the measure in the wake of Taiwan tensions between the world's two largest economies.

China's stock of US government debt fell to $967.8 billion in June, the lowest since May 2010, when it stood at $843.7 billion. In May, the world's second-largest economy held $980.8 billion worth of Treasury bonds, data showed. China's stock of US debt has hit 12-year lows in the past few months. "This looks more like a function of China's currency intervention to keep USD/CNY stable in a strong dollar environment," said Chris Turner, head of global markets at ING. "Further declines in China's US Treasury holdings seem likely as geopolitical spheres of influence sharpen following Russia's invasion of Ukraine and seizure of Russian foreign exchange reserves. Since hitting a near 20-month high in mid-May, the US dollar has been largely stable against the Chinese yuan, losing about 1%. The dollar was last up 0.5% at 6.7755 yuan. There is one more issue in the US-China relationship, concerning Taiwan, an autonomous island that China claims as its own, but this is not yet reflected in the data covering June figures. In early August, Speaker of the US House of Representatives Nancy Pelosi visited Taiwan, becoming the highest-ranking US official to visit the region in 25 years, drawing China's ire. China later announced it was halting dialogue with the United States on a range of issues, including between theater-level military commanders and on climate change, in anger over Pelosi's visit. The data also showed that Japan increased its holdings of Treasury bonds from $1.224 trillion in May to $1.236 trillion in June. The Treasury report released in July showed that Japan held $1.213 trillion in Treasuries in May. Overall, foreign holdings of Treasuries rose to $7.430 trillion in June from a revised $7.426 trillion in May. On a transaction basis, net foreign inflows into US Treasuries totaled $58.9 billion in June, compared with $99.84 billion in the previous month. US Treasuries recorded foreign inflows for the second month in a row. Inflows were generally in line with the price movements in the Treasuries market. The yield on the benchmark 10-year Treasury bond started June at 2.9310% and ended the month at 2.974%, down about 4 basis points. The Federal Reserve raised benchmark interest rates by 75 basis points in June and July and is on track to raise rates again in September to contain inflation. Data also showed that US residents once again sold their holdings of long-term foreign securities, with net sales reaching $50.5 billion in June, up from $22.8 billion in May.