China holdings of U.S. debt fall below $1 trillion for the first time since 2010

Washington D.C.: The U.S. Treasury Building
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China has reduced its holdings of U.S. government debt to $1 trillion, the first drop in twelve years. This is despite rising interest rates making Treasurys less appealing.

According to data from the Treasury Department, China’s U.S. debt portfolio fell to $980.8 million in May, continuing a trend begun in 2021. This is a decrease of almost $23 billion compared to April, and a drop of close to $100 billion (or 9%) from the previous year.

This marked also the first time that China’s debt holdings have fallen below $1 trillion since May 2010. With $1.2 trillion, Japan now holds the largest amount of U.S. government debt.

As the U.S. Federal Reserve raises rates to stop inflation from running at an ever-faster rate, this debt drop comes just as it has increased its interest rates. If rates go up on bonds, the prices fall, which can lead to capital losses for those who have sold bonds prior to maturity.

China’s decline in share can also be attributed to Beijing trying to diversify its foreign-debt portfolio.

The period covered the reporting period before the Fed increased benchmark overnight borrowing rate by 0.75 percentage points in June. There is a second rise of this size expected next week.

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