A report that China is nudging banks to trim US Treasury exposure added to “sell-America” nerves, but markets still assume any shift would be gradual, not a disorderly dump.
Justin had the breaking on this here yesterday:
China calls on banks to reduce US Treasuries exposure amid “market volatility” – report
but I wanted to re-up it, it seems significant to me!
Summary:
China’s regulators have reportedly told domestic financial institutions to curb US Treasury exposure, framing it as concentration-risk and volatility management rather than a geopolitical signal.
Markets treated it as “diversification at the margin”, with limited immediate spillover and no sign of forced, rapid selling.
The story fed into a broader “sell-America” narrative as the USD softened and longer-end yields were choppy, alongside wider questions about US fiscal settings and institutions.
Official data show China-based investors’ Treasury holdings have fallen sharply from the 2013 peak, while Belgium’s reported holdings have risen (often viewed as a proxy for custodial accounts).
Analysts broadly expect any further reduction to be slow and managed, given the risks of destabilising global yields and China’s own reserve/liquidity needs.
Chinese regulators have reportedly advised the nation’s financial institutions to rein in US Treasury exposure, citing concentration risk and heightened market volatility. The guidance was presented as portfolio risk diversification rather than a judgement on US creditworthiness, and was said not to apply to state holdings.
Even so, the timing and message landed in a market already sensitive to questions about the durability of US “safe haven” status. Investors have been weighing the implications of US fiscal expansion, unpredictable trade and diplomacy, and political pressure on institutions, with gold and other alternatives attracting incremental interest in recent months, analysts say.
Price action reflected that nervousness at the margin: longer-dated yields were choppy and the dollar slipped after the report, though the broader Treasury market response remained contained. Commentary from market strategists framed the move as another data point supporting a slowly forming narrative of structural diversification away from the dollar, rather than an imminent shock to Treasury demand.
Holdings trends support the “gradualism” view. Official US data show China-based investors’ Treasury holdings have roughly halved from the 2013 peak to about $683bn, the lowest level since 2008. Separately, Belgium’s holdings have climbed sharply over recent years, a figure often interpreted as capturing custodial accounts linked to offshore ownership.
Analysts argue a rapid liquidation would be self-defeating, risking a spike in US and global yields and broader financial instability. As a result, the base case remains that any trimming would be paced, opportunistic and spread across instruments, rather than a single, disruptive selling programme.
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Be great to be a fly on the wall at this ….
Trump and Xi will meet in the first week of April
This article was written by Eamonn Sheridan at investinglive.com.