Although, this could be part of a retaliatory move, it is to be noted that central banks of export-oriented countries often sell their U.S. Treasury holdings in order to hedge their currencies from a sharp appreciation of the greenback.
According to U.S. Treasury data, China has sold its maximum U.S. Treasuries in almost 2-1/2 years in March midst an escalating U.S.-China trade war.
Since last week after a dismal 10-year Treasury auction, speculation has been rife whether China will sell its U.S. debt as a retaliatory measure for a hike in U.S. tariffs on $200 billion of its exports.
According to U.S. Treasuries data, China has sold Treasuries worth $20.45 billion in March, the most since October 2016.
Following the sale, China’s stake in U.S. Treasuries have fallen to $1.121 trillion in March, its lowest holding since May 2017.
“The decline this month brings China essentially flat to where they were in February, erasing the increases from December through February,” said Jefferies LLC’s senior money market economist Tom Simons.
In spite of the sale, China continues to remain the largest U.S. creditor.
Meanwhile Japan has raised its U.S Treasuries holdings to $1.078 trillion – its highest since November 2017, up from $1.072 trillion in February. However, another set of Treasury data shows Japan has sold $11.07 billion in U.S. government debt in March.
Japan is U.S.’s second biggest creditor.
The sale of U.S. treasuries have coincided with a rally in the U.S. dollar in March spurred by safe-haven bids for the greenback amid worries about the global economy, trade tension and uncertainty around Brexit.
Incidentally, central banks of export-oriented countries often sell their U.S. Treasury holdings in order to defend their currencies from a sharp appreciation of the greenback.
Foreign central banks and other government entities have accelerated the sale of their U.S. assets holdings, and have sold $21.7 billion in March, up from $10.1 billion in February.
The official foreign sales in March were offset by net purchases by private overseas investors which acquired $13.6 billion in U.S. assets after a revised $11.4 billion in sales in February.