In September 2024, China's holdings of U.S. Treasury bonds decreased to $776.5 billion in July, down from $780.2 billion in June. This decline comes on the heels of the U.S. Federal Reserve's decision to cut interest rates by half a percentage point on September 19, marking the first rate cut in four years. Analysts are now closely watching whether China will continue to divest from U.S. debt or increase its purchases in response to these economic shifts [3dcf6146].
Japan's holdings also saw a decrease, falling to $1.16 trillion in July from $1.18 trillion in June. Meanwhile, Singapore increased its U.S. Treasuries holdings to $234.2 billion in July, indicating a contrasting trend among foreign investors [3dcf6146].
Despite the reduction in U.S. debt holdings, China's foreign reserves stood at $3.29 trillion in August, suggesting a robust financial position. Analysts, including Tommy Wu from Commerzbank and Julian Evans-Pritchard from Capital Economics, indicate that China is likely to continue diversifying its reserves away from U.S. dollar assets, reflecting a strategic shift in its economic policy [3dcf6146].
Brad Setser estimates that China has approximately $6 trillion in foreign assets, with U.S. bonds constituting about 50% of its reported reserves. This highlights the significant role that U.S. Treasuries play in China's overall investment strategy, even as the country seeks to mitigate risks associated with U.S. dollar dependency [3dcf6146].
In the broader context, China's total holdings of U.S. Treasury bonds have remained below $1 trillion since April 2022, and the recent fluctuations in its investments are part of a larger trend of reassessing foreign asset portfolios amid global economic uncertainties. The implications of these changes are likely to influence U.S. financial markets and funding costs as both China and India navigate their positions in the U.S. Treasury market [5b832326][216abc24].