China’s holdings in US debt fall below $1 trillion for the first time since 2010

The US Treasury Department building in Washington, DC

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China’s holdings of US debt have fallen below $1 trillion for the first time in 12 years amid rising interest rates that have made Treasuries potentially less attractive.

Continuing a trend that began in early 2021, China’s portfolio of government debt fell to $980.8 billion in May, according to Finance Ministry data released on Monday. That’s down nearly $23 billion from April and down nearly $100 billion, or 9%, from the same time a year ago.

It was also the first time since May 2010 that China’s inventories fell below $1 trillion. Japan is now the top holder of US debt at $1.2 trillion.

The moves came as the US Federal Reserve hiked interest rates to stem inflation from its highest level since 1981. When interest rates on bonds rise, prices fall, which means a loss of capital for investors who sell the bonds before maturity.

The decline in China’s share was also attributed to the country’s attempt to diversify its external debt portfolio.

The period came before the Fed hiked benchmark overnight rates by 0.75 percentage point in June, with another hike of the same magnitude likely next week. China’s holdings in US debt fall below $1 trillion for the first time since 2010

Joshua Buckhalter

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