China Cuts U.S. Treasury Holdings to Lowest Level Since 2017

Cornelia Mascio
Mag 18, 2019

Former Dallas Fed advisor Danielle DiMartino Booth, Wall Street Journal assistant editorial page editor James Freeman and Layfield Report CEO John Layfield on whether the U.S.

U.S. -listed Chinese companies traded mostly lower on Monday with nine of the top 10 stocks by weight in the S&P U.S. Listed China 50 index ending the day on a downbeat note. Meanwhile, investors are pricing in a Federal Reserve interest-rate cut this year as a near certainty.

Since last week after a dismal 10-year Treasury auction, there has been renewed speculation whether China may sell its USA debt in retaliation for increased tariffs on $200 billion of its exports to the United States.

China's stake in Treasuries fell for the first time in four months to $1.121 trillion in March, which was the lowest since May 2017 when it was $1.102 trillion. Japan remained the second-biggest holder, with $1.08 trillion in March, up from February's $1.07 trillion.

"The decline this month brings China essentially flat to where they were in February, erasing the increases from December through February", Jefferies LLC's senior money market economist Tom Simons told Reuters.

Gold futures on the COMEX division of the New York Mercantile Exchange rose over one percent on Monday, as investors took refuge in haven gold after USA equities dropped amid escalating trade frictions between the United States and China.

China's US Treasury holdings fell in March to their lowest level in two years, with Beijing trimming its lending to the United States amid a protracted trade war, government data shows.

They sold $12.53 billion in US government debt in March after buying $19.91 billion the month before.

"Investors are increasingly anxious that an anticipated second-half profit rebound may now evaporate, as President [Donald] Trump's threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven USA economy", he said.

Official overseas selling of Treasuries coincided with a dollar rally in March spurred by safe-haven bids for the greenback amid worries about the global economy, trade tension and uncertainty around Brexit.

On the other hand, they bought $4.74 billion in agency securities and $1.11 billion of corporate bonds.

Aggregating net foreign acquisitions of long-term securities, short-term USA securities and banking flows, the result was a 8.1-billion-dollar net foreign outflow of US securities in March, the data showed.

The sell-off that sank US stocks and global commodities spilled into Asia after China retaliated with higher tariffs on a range of American goods.

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