Synopsis:
MUFG examines the trend of China's persistent selling of US Treasury bonds, highlighted by the recent release of the US Treasury International Capital data for March, which confirms a continued reduction in China's holdings of US securities.
Key Points:
- March Data Overview: The data shows overall solid buying of US securities, but notable for China’s sale of USD 9.8 billion in US Treasury bonds and USD 5.1 billion in Agency bonds.
- Continued Trend: This marks the fifth consecutive month of Treasury bond sales by China, a trend not directly tied to USD/CNY policy moves but rather indicative of a possible saturation in China’s appetite for US Agency bonds.
- Historical Context: The sustained selling pattern is significant, potentially leading to unprecedented market conditions. Previously, even during the Global Financial Crisis (GFC), such a consistent reduction in both Treasury and Agency bonds was not observed.
- Market Implications: Ongoing sales could signal a strategic shift by China, possibly moving away from US securities altogether, which would demand close market attention given its potential impact.
Conclusion:
The sustained selling of US Treasury bonds by China raises important questions about future investment patterns and market dynamics. While not immediately alarming, another month of such activity could lead to significant market discussions and potential shifts in global financial strategies.