A seller
With US treasury prices still dominating flows across the world, do we need to worry about China’s swelling selling appetite? In recent memory China has always been one of the most significant holders of US treasury bills. Counting as quasi-FX reserves and a stabilising financial asset to hold within its coffers, China’s ownership of US debt is on a colossal scale. The size of that ownership is often characterised as systemically large and the risk of a sell-down in that stockpile of US debt when international relations between China and the US deteriorate is frequently debated.
The sell off in US treasuries and stocks is taking place at the level of the firm and investor rather than the state. Given the significant decline in US treasury yields over the past few months, those investors must be materialising some rather hefty losses. So, why sell? Without a certain path higher for US treasury yields, it seems likely that institutions are bracing for another set of intervention requests from the monetary authorities. In August when the Yuan hit a near year-low versus the US Dollar, Beijing told state owned institutions to engage in open market operations to buy Yuan to stabilise the exchange rate.
As weakness re-emerges into the Yuan, it seems likely that record sales of US assets could be in order to realise US Dollar cash to subsequently buy the Yuan when instructed. The fact China is selling US assets heavily should keep us alert to two plausible risks. Firstly, with Treasury prices perched precariously, further selling in material volumes is more likely at present to drive prices lower and yields higher. If there’s a known seller in town, benchmark yields will have an easier time moving higher. Secondly, we would be braced for any potential correction higher in the Chinese Yuan as further currency intervention looks likely once again.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – A weaker Dollar: Trump vs. Powell
Charles Porter
Thu 26 Jun 2025
A weaker Dollar: Trump vs. Powell The Dollar continued to lose ground yesterday as the truce between Israel and Iran appeared to continue to hold. There has been a noticeable return to focus upon macro and monetary influences in major currency pairs. Yesterday, Fed Chair Jay Powell provided his semi-annual monetary policy report before the […]
Daily Brief – Whiplash
Charles Porter
Tue 24 Jun 2025
Whiplash A highly volatile start to yesterday’s trading session saw a flight to safety in markets. Despite the Dollar having lost much of its appeal as a safe haven lately, there was still an identifiable USD bid prior to and during the European open. We have identified recently how markets have clearly differentiated between general […]
Daily Brief – Top Trumps
Charles Porter
Thu 19 Jun 2025
Top Trumps Geopolitical risks are outweighing macroeconomic fundamentals in today’s markets. We can see this very clearly from the muted reactions in price being generated from major macro events including data and interest rate decisions. The same holds true of the Fed’s interest rate decision where markets barely blinked at a Fed that had changed […]
