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China has lowered its US debt holdings to the lowest level in two years

Chinese President Xi Jinping

Alexander Ryumin | TASS | Reuters

As the trade tensions with the United States intensified, China sold its treasury holdings at the fastest rate in about two years in March.

The largest foreign owner of US debt reduced the level by just shy of $ 20.5 billion, a slight decrease that brought the total holdings to $ 1.12 billion. But the move is a continued decline in the reduction that comes because the two sides have not succeeded in hampering a long-term trade agreement and have instead engaged in a campaign for tit-to-tat tariffs that have risen in recent days.

During the 12-month period ending in March, the last month for which data is available, China's stock of US government bonds, bonds and bills fell by $ 67.2 billion, down 5.6%. The total has fallen by about $ 200 billion since peaking in 2012 and now represents 7% of total US debt on average, compared to 12% previously, according to UBS.

The nation's threat, neither buying Treasury nor engaging in direct sales, has shaken the bond market earlier. In addition to any criminal action that China may take, it is considered to have reduced its holdings in an attempt to defend its currency.

More aggressive measures to cut holdings are considered a nuclear alternative that can further aggravate ongoing trade negotiations.

However, the effect of such movements is unclear.

UBS estimates that if the reduction is gradual, it will probably lead to an increase in the reference value of 10 years by a maximum of 0.4 percentage points.

"To the extent that China's government tax sales can be either the cause or the effect of a more risky global environment, the positive impact on government returns can be less than estimated if private investors are increasing their treasury purchases," said UBS strategist Chirag Mirani and others. in a note to customers.

China's share of total US debt relative to the second global government declined to 17.3%, the lowest since June 2006. Japan is still the second largest holder, with $ 1.08 billion, while the UK returned to third place, as it increased its level to $ 317.1 billion.

Foreign state ownership for US debt gained a new record of $ 6.47 billion, up 4% on a year ago, as the government's total debt continues to swell and now has increased $ 22 trillion. Foreign residents increased their holdings by $ 23.9 billion.

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