China cuts US debt holdings amid Fed taper

China reduced its holdings of US Treasury debt in December by the most in two years as the Federal Reserve announced plans to slow asset purchases.

US government bonds held by China – the biggest US creditor – fell by US$47.8 billion, or 3.6 per cent, to US$1.27 trillion, the largest decline since December 2011, Department of the Treasury data released on Tuesday shows. At the same time, international investors increased holdings by 1.4 per cent, or US$78 billion, in December, pushing foreign holdings to a record US$5.79 trillion.

“The Chinese move to sell suggests central banks are becoming more wary of taking duration risk now with the Federal Reserve firmly into the tapering process,” said Aaron Kohli, an interest-rate strategist in New York at BNP Paribas, one of 22 primary dealers that trade with the Fed. “If China continues to sell again in the next month or two, then more worries will arise as to who will buy the country’s debt.”

The Fed trimmed its US$85 billion of monthly bond buying by US$10 billion in January and again in February. Economists estimate that pace will continue until the central bank ends the programme at the end of the year.

Treasury holdings in Japan, the second-largest overseas lender to the US, rose for the sixth consecutive year, climbing 6.4 per cent, or by US$71.3 billion, to US$1.18 trillion, Treasury data shows. The country’s investors pared their position by US$3.9 billion, or 0.3 per cent, in December.

Full article: China cuts US debt holdings amid Fed taper (South China Morning Post)

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