Why ‘China Dumping Treasuries’ Headlines Aren’t Scary

May 16, 5:00 pm EST

There’s a lot of chatter about China offloading of U.S. Treasuries.

China is the largest foreign holder of Treasuries, with a stake of $1.1 trillion.  And the latest report from the U.S. Treasury showed China, as Reuters puts it, selling “the most U.S. Treasuries in nearly two-and-a-half years.”  Sounds scary.

The dark scenario of China dumping our treasuries is not a new one.  It has been talked about for a long time as existential threat.  Surely, an increase in tariffs and a tough negotiating position from the U.S. would set this into motion. Right?

Let’s take a closer look at this threat. 


Above is a snapshot of the recent TICs report.  You can see that China has sold over the past twelve months, $67 billion worth of Treasuries.  You can also see that any sign of “systematic selling” was short-lived (five months) last year.  It came to a halt when the sell-off in global stocks elevated the risks to global stability (i.e. when risk rises, they and everyone wants to own Treasuries — the safest parking spot for global capital).

You can also see that, over the past twelve months, the other biggest holder of U.S. Treasuries, Japan, was a net buyer (of $34 billion) – as was most of the rest of the world (to the tune of $250 billion).

The take away:  Even if China were to “dump” Treasuries there are plenty of buyers.  Don’t forget, the Bank of Japan is printing yen to buy assets (domestic and global). They could buy unlimited Treasuries.  The Fed can buy more Treasuries (they already own $2 trillion worth).

As we’ve discussed, China’s tool to fight tariffs isn’t the U.S. Treasury market, it’s their currency.  And devaluing the yuan increases the value of their dollar-based Treasury holdings (in yuan terms).  But any big one-off devaluation of the yuan would likely get China’s other global trading partners more visibly into the fight.

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