Earlier this week we highlighted how cut its holdings of U.S. government bonds by the largest ever monthly amount in June. Expanding this thread, it should be noted that China’s U.S. debt ownership has fallen to $843.7 billion in June from $938.3 billion in September 200,9 according to U.S. Treasury Department released Monday. This equates to nearly an 11% reduction by China.
Yet interestingly, the 10-year U.S. treasury yield has fallen over the same period, despite the meme that China’s voracious U.S. debt buying supports keeps America’s bond yields low. (Note that China’s U.S. debt holdings encompasses more than just 10-year U.S. bonds, however. )
Now, obviously China continues to support the market by owning a vast quantity of government bonds, in fact the most of any nation as of June, but China’s reduction in treasury holdings since September 2009 seems to imply that U.S. treasury yields can fall, and thus treasuries rally, even as China pares back its ownership substantially (11% is a lot for less than a one year period).
This makes the U.S. government bond rally, or bubble depending on your view, even more peculiar. You can’t blame it on China propping the market with its standard dollar-recycling activities anymore, it seems.
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