China pares back holdings of U.S. Treasuries for 7th month

By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - China slashed holdings of U.S. Treasuries for the seventh straight month in June, Treasury Department data released on Monday showed, with investors hesitating the move amid tensions between the world's two largest economies, in which Taiwan was involved.
China's stockpile of US government debt fell to $967.8 billion in June, the lowest since May 2010, when it was $843.7 billion. Data showed that the world's second largest economy had $980.8 billion worth of government bonds in May. China's hoard of US debt has hit multiple 12-year lows in recent months.
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"This appears to be more of a function of Chinese FX intervention to keep USD/CNY stable in a strong dollar environment," said Chris Turner, global market leader at ING.
“Further decline in China's US Treasuries is likely as geopolitical spheres of influence tighten following Russia's invasion of Ukraine and confiscation of Russian foreign exchange reserves.
Since hitting a roughly 20-month high in mid-May, the US dollar has remained broadly stable against the Chinese yuan, down about 1%. The dollar was last up 0.5% to 6.7755 yuan.
There is an additional fold in US-China relations involving Taiwan, a self-governing island that China claims as its own, but that is not yet reflected in the data covering the June figures. In early August, US House Speaker Nancy visited Taiwan, the top US official to have visited the territory in 25 years, sparking China's outrage.
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China later announced it would halt dialogue with the United States on a number of areas, including between theater-level military commanders and on climate change, amid uproar over Pelosi's visit.
Data also showed that Japan increased holdings of government bonds to US$1.236 trillion in June, from a revised US$1.224 trillion in May. The financial report released in July showed that Japan had US$1.213 trillion in government bonds as of May.
Overall, foreign holdings of government bonds rose to $7.430 trillion in June from a revised $7.426 trillion in May.
On a transaction basis, US Treasuries recorded net inflows from abroad of $58.9 billion in June, compared with inflows of $99.84 billion in the previous month. US Treasury bonds saw foreign inflows for the second straight month.
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Inflows generally corresponded to price action in the Treasury market. The benchmark 10-year Treasury yield started June at 2.9310% and ended the month at 2.974%, down about 4 basis points.
The Federal Reserve raised interest rates by 75 basis points in June and July and is on course to hike again in September to tame inflation.
In other asset classes, foreigners sold US equities by US$25.36 billion in May for the sixth consecutive month, after US$9.15 billion outflows in May.
US corporate bonds recorded inflows of US$13.99 billion in June, compared to US$4.46 billion in the previous month. Foreigners were net buyers of US corporate bonds for six months.
The data also showed that US residents continued to sell their holdings of long-dated foreign securities, with net sales of $50.5 billion in June, down from sales of $22.8 billion in May.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Winni Zhou in Shanghai; Editing by Richard Chang and Josie Kao)

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