While viewing China as less likely to dump US government bonds amid easing pressure on the yuan from lower US interest rates, analysts warn that Beijing’s ongoing diversification plan still prevents it from adding a significant amount of US Treasuries.
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Foreign holdings of US Treasuries rose to a record high in July in anticipation of the Federal Reserve’s rate cut, data from the US Department of the Treasury showed on Wednesday.
China’s holding of US government bond assets dropped to US$776.5 billion in July from US$780.2 billion in June while remaining the second-largest foreign holder, after Japan.
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Meanwhile, Japan’s holding reached the lowest point since October, falling to US$1.16 trillion in July from US$1.18 trillion in June. Singapore, however, raised its US Treasuries holdings to US$234.2 billion in July from US$219.6 billion in June, according to US data.
“China is likely to continue diversifying its reserve portfolio away from US dollar assets to assets in other currencies, and possibly gold as well,” said Tommy Wu, senior economist at Commerzbank.