Chart of the Day: China’s Shrinking U.S. Treasury Hoard

[TaiShang]

Nov 19, 2018 05:30 PM

Chart of the Day: China’s Shrinking U.S. Treasury Hoard

China’s holdings of U.S. Treasurys fell to a 15-month low in September as the country beefs up measures to support the yuan, which has been depreciating against the dollar amid an ongoing trade war between the world’s two largest economies.

China cut its holdings of U.S. Treasury bills, bonds and notes to $1.15 trillion at the end of September, the lowest level since June 2017 and down by $13.7 billion from a month earlier, according to data published Friday by the U.S. Treasury Department.

Graphic: Gao Baiyu/Caixin


China is the largest foreign holder of U.S. Treasurys. It owned about 18.5% of all foreign-held Treasurys in September. The foreign country with the second-largest holdings is Japan, whose own hoard of the bonds slipped to $1.03 trillion at the end of September.

From mid-March to September, the yuan has lost more than 8% of its value against the U.S. dollar amid the escalating trade war. Fears have grown in the market that the Chinese government might try to stimulate exports by devaluing its currency, but Beijing has been trying to stabilize the yuan and is unlikely to let the currency weaken past the 7 per U.S. dollar anytime soon, experts said last month.

China and the U.S. have resumed talks on settling their trade disputes, China’s Commerce Ministry confirmed last week.

https://www.caixinglobal.com/2018-1...as-shrinking-us-treasury-hoard-101349261.html

 

[nahtanbob]

you cannot simultaneously dump US treasuries and prevent the yuan from appreciating

 

[Jlaw]

you cannot simultaneously dump US treasuries and prevent the yuan from appreciating

Why not?

 

[Chinese-Dragon]

you cannot simultaneously dump US treasuries and prevent the yuan from appreciating

When China sells US treasury bonds (or other dollar-denominated securities) that puts downwards pressure on the US dollar and causes pressure on the Yuan to appreciate. Just think about it as if China is selling dollars, if there are more dollars in the market, their value will go down. Whereas if China BUYS more US treasury bonds, that does the opposite, it makes the dollar stronger and depreciates the Yuan.

However this only has a minor impact on the market, given that China is making these moves very slowly and with small amounts at a time. The last thing that China wants to do is cause a panic, which would cause all other investors to start panic selling US bonds before their value falls to zero. Which would mean the US bonds and dollars that China holds will become worthless, China will take a big hit from that.

China benefits most from stability, it is the USA who wants to disrupt the system, especially under Donald Trump.

 

[TaiShang]

When China sells US treasury bonds (or other dollar-denominated securities) that puts downwards pressure on the US dollar and causes pressure on the Yuan to appreciate. Just think about it as if China is selling dollars, if there are more dollars in the market, their value will go down. Whereas if China BUYS more US treasury bonds, that does the opposite, it makes the dollar stronger and depreciates the Yuan.

However this only has a minor impact on the market, given that China is making these moves very slowly and with small amounts at a time. The last thing that China wants to do is cause a panic, which would cause all other investors to start panic selling US bonds before their value falls to zero. Which would mean the US bonds and dollars that China holds will become worthless, China will take a big hit from that.

China benefits most from stability, it is the USA who wants to disrupt the system, especially under Donald Trump.

Exactly. China just wants to keep the USD-RMB rate in a balanced and stable position by playing with the amount of USD it holds.

But, the general trend recently seems to be getting rid of the USD, incrementally. Not China, Japan, as well.

 

[nahtanbob]

When China sells US treasury bonds (or other dollar-denominated securities) that puts downwards pressure on the US dollar and causes pressure on the Yuan to appreciate. Just think about it as if China is selling dollars, if there are more dollars in the market, their value will go down. Whereas if China BUYS more US treasury bonds, that does the opposite, it makes the dollar stronger and depreciates the Yuan.

However this only has a minor impact on the market, given that China is making these moves very slowly and with small amounts at a time. The last thing that China wants to do is cause a panic, which would cause all other investors to start panic selling US bonds before their value falls to zero. Which would mean the US bonds and dollars that China holds will become worthless, China will take a big hit from that.

China benefits most from stability, it is the USA who wants to disrupt the system, especially under Donald Trump.

you exactly said what i said. i am not arguing otherwise. china will slowly reduce the exposure to US treasuries
i have no explanation for what donald trump does

Why not?

if you dump US Treasuries you are selling dollars. what are chinese going to do with the US dollars ? they have to
convert to chinese yuan. it is simple supply and demand.

 

[Realtalk108]

you cannot simultaneously dump US treasuries and prevent the yuan from appreciating

They are not trying to prevent the yuan from appreciating. They are trying to prevent it from depreciating. Which is exactly what selling those bonds will achieve.

 

[nahtanbob]

They are not trying to prevent the yuan from appreciating. They are trying to prevent it from depreciating. Which is exactly what selling those bonds will achieve.

of course you want your exchange rates to be in a stable band
selling the treasuries is an easy decision. buying more is the real decision to make for china