In the 12-month period ended in March, the latest month for which data is available, China’s stockpile of US government notes, bonds and bills fell by $67.2 billion, a 5.6% decline. The total has fallen by some $200 billion since the peak in 2012 and now represents 7% of total US debt outstanding, while previously it was 12%, according to UBS.
The move represents a continued pattern of declines as the two sides have been unable to forge a long-term trade agreement and remain engaged in a tough tariff fight that has escalated in recent days.
UBS estimates that if the reduction is gradual, it likely would result in a rise in the benchmark 10-year Treasury yield of at most 0.4 percentage point.
“To the extent that China’s Treasury sales could be either the cause or the effect of a more risk-averse global environment, the positive impact on Treasury yields could be smaller than estimated if private investors step up their Treasury purchases,” UBS strategist Chirag Mirani and others said in a note to clients.
China remains the world’s biggest holder of total US debt, even after its share declined to 17.3% compared with other governments around the globe, the lowest since June 2006. Japan is still the second-largest holder, with $1.08 trillion, while the UK stepped backed into third place as it increased its level to $317.1 billion.
Foreign government ownership of US debt hit a record of $6.47 trillion, up 4% from a year ago, as the government’s total debt continues to swell and now has topped $22 trillion. Foreign residents increased their holdings by $23.9 billion.