China has dumped US Treasuries for a 7th straight month as it defends the yuan against the dollar

China has reduced its holdings of US Treasuries in recent months.REUTERS/Tingshu Wang
China has reduced its holdings of US Treasury bonds for the seventh straight month, official data showed on Monday.
Analysts have said China may seek to prop up its currency, the yuan, if the dollar strengthens.
China may also seek to diversify away from dollar assets amid geopolitical tensions.
China sold US Treasuries for the seventh straight month in June, a possible sign Beijing is trying to defend the yuan against the dollar.
China's holdings of US Treasuries fell to $967.8 billion in June, compared with $980.8 billion in May, Treasury Department data showed on Monday. Its holdings are down sharply from last year when they were $1.06 trillion.
Analysts have offered various theories as to why China has reduced its bond holdings in recent months. Most are suggesting that Beijing is looking to strengthen the yuan against the dollar as it has become a bit more nervous about holding US assets amid the recent escalation in geopolitical tensions.
Chris Turner, ING's global head of markets, believes the ongoing sell-off is likely being driven by a desire to protect the Chinese currency's value against its rising US counterpart.
"This seems more a function of Chinese FX interventions to keep USD/CNY stable in a strong dollar environment," he said in a note to Dutch bank clients earlier this month.
However, Turner said geopolitical considerations are also at play, with many governments concerned about the move by the US and its allies to freeze Russia's foreign exchange reserves.
"A further decline in China's US Treasury holdings is likely as geopolitical spheres of influence tighten after Russia's invasion of Ukraine and confiscation of Russian foreign exchange reserves," he said.
The yuan has fallen sharply against the dollar this year as concerns over the Chinese economy mounted and the US Federal Reserve hiked interest rates.
A cheaper currency usually makes exports more competitive, but Beijing seems anxious not to let its currency slide too far.
SGH Macro Advisors' Sassan Ghahramani agreed with Turner that the sell-off could continue as US-China geopolitical frictions run high. Those tensions have flared since a visit by US House Speaker Nancy Pelosi to Taiwan, which China claims as part of its territory, in early August.
"The quest to reduce USD exposure has been an ongoing strategic goal by Beijing, but one that is now being repeatedly reiterated by private officials and appears to be accelerating," Ghahramani said.

China remains a major foreign holder of US Treasuries, surpassed only by Japan, official figures show.
Read the original article on Business Insider

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