On the 24th of November 2022, Wall Street Silver indicated that China and Japan were selling the US treasuries at a record level.
https://twitter.com/WallStreetSilv/status/1595779280679489538
For the 7th month in a roll, China has cut its hold on the US treasuries, and analysts are full of speculations as to why this is so. Some are of the opinion that China is trying to protect its yuan on the international front as the dollar rises to its all-time high.
Others are of the opinion that the sell-out is a result of international tension between the two countries. Under such a situation, it’s natural that China would want to diversify its assets in other directions pending an outright fallout between the two countries.
Yet, why has China accumulated so much US Debt?
Well, the export-driven Chinese economy needs to keep its yuan slightly cheaper than the dollar to continue exporting and keeping its population engaged. To achieve that, the Chinese central bank constantly buys the US dollar to avoid an economic self-correcting mechanism.
If the Self-correcting mechanism were left unchecked, the yuan would rise beyond the dollar, making exports costlier, and adversely affecting the Chinese economy.
Though China is the highest holder of US treasuries, they aren’t the only holders selling out their position. According to the tweet, Japan, the Fed, and even the social security trust fund is selling out.
Significant holders of the US treasuries are pulling out and dumping their holdings. A few weeks ago, even the US Federal Reserve upped the pace regarding its plans to offload Treasuries from its balance sheet, reducing its value to $60 billion a month.
With multiple significant buyers exiting, the US would be tasked to find another buyer. One that is capable of covering the “couple billion” difference. All This development is on the heel of a couple of months of deteriorating liquidity, weak auctions, and unprecedented volatility.
In the backdrop of higher interest rates, the Federal Reserve has no issues with creating the volatility it has been attempting to suppress for years.
