China and Japan Selling US Treasuries Amid Global Economic Shift

China and Japan are leading the charge in reducing their US Treasury holdings, a trend that signals a significant shift in global economic dynamics. In the past year, China's holdings of US Treasuries have decreased by $20 billion.

This reduction is a result of China's growing concern over the rising US debt and its potential impact on the global economy. As a result, China is diversifying its portfolio by investing in other assets, such as European and Asian bonds.

The decrease in US Treasury holdings by China and Japan is also a sign of their growing economic independence, as they focus on domestic growth and regional trade agreements.

Consider reading: China's Holding of Us Treasuries

Japan and China, two of the world's biggest foreign holders of US government debt, offloaded a significant amount of Treasuries in the third quarter before the presidential election. Japanese investors sold a record $61.9 billion of Treasuries in the three months ended Sept. 30, while funds in China offloaded $51.3 billion during the same period.

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The return on Treasuries peaked at a 2-1/2 year high in mid-September, but has since dropped almost 4% due to concerns over President-elect Donald Trump's low-tax, high tariff policies fueling inflation. This uncertainty has added to the upward pressure on US yields, making it more expensive for the US government to service its debt.

Japan's selling may have been amplified by the nation's intervention in the foreign-exchange market on July 11 and 12, when the Ministry of Finance sold dollars to buy the yen for a total of ¥5.53 trillion yen ($35.9 billion).

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China has been selling off U.S. Treasuries, with a record $51.3 billion sold in the third quarter of 2020.

This is a significant amount, and it's not just a one-time occurrence. China has been reducing its holdings of U.S. debt since 2020.

China's decision to sell U.S. Treasuries may be related to geopolitical agendas shifting, and the country may no longer see the need for a large stash of U.S. dollars.

China's selling of U.S. Treasuries has been motivated by rising interest rates, which make holding large amounts of U.S. debt risky.

In fact, China's sales of U.S. Treasuries have been so significant that they have been a major factor in the upward pressure on U.S. yields.

China's actions are likely to continue, with analysts predicting that the country will continue to sell U.S. Treasuries in response to inflationary policies and tariffs implemented by the U.S. government.

Saudi Arabia's sales are a significant factor in the global economy. They announced plans to sell $100 billion in bonds in 2020, the largest ever sale by a single borrower.

The kingdom has been increasing its reliance on debt to fund its budget deficit. In 2019, Saudi Arabia's debt-to-GDP ratio rose to 30.5%, up from 17.8% in 2015.

The oil price slump of 2014-2016 had a significant impact on Saudi Arabia's finances. The country's revenues plummeted, forcing it to rely on debt to stay afloat.

A 20% increase in the supply of Treasurys is huge, considering yields are already around 5% and poised to go higher.

Higher yields increase how much interest must be paid to service our $35 trillion federal debt, which is already a staggering number.

If the Treasury gets backed into this corner and is forced to pony up higher yields, then things will unravel fast.

We'll look back fondly at 8% mortgage rates and the limited bank failures of spring 2023, because things will be much worse than that.

The government could short-circuit this entire collapse by simply cutting spending and getting on a path to fiscal sustainability, but it's a drastic measure that hasn't been taken yet.

A $400 billion fire sale of U.S. debt by Japan could break the back of the Treasury market and devastate Americans' finances.

Intriguing read: Us Stocks Fall as Treasury Yields Rise.

China trimmed its holdings of US Treasuries in July, decreasing to US$776.5 billion from US$780.2 billion in June.

Japan, the largest foreign holder, saw its US government bond assets fall to the lowest since October, decreasing to US$1.116 trillion from US$1.118 trillion the previous month.

Japanese authorities spent 5.53 trillion yen intervening in the foreign exchange market in July to pull the yen off 38-year lows.

Foreign holdings of US Treasuries rose to a record high in July, despite China and Japan trimming their holdings.

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