China Urges Banks to Limit US Treasuries Buying, Yields Rise

China has instructed major commercial banks to limit new purchases of U.S. Treasuries, triggering a modest rise in bond yields during Asian trading as markets reacted to potential changes in global demand for U.S. government debt.

According to Bloomberg, officials verbally communicated the guidance to some of China’s largest banks earlier this month, urging institutions with heavy exposure to gradually scale back holdings to reduce concentration and volatility risks. The move targets commercial lenders and does not apply to China’s sovereign reserve holdings.

https://twitter.com/BSCNews/status/2020762844254593053?s=20

Guidance Targets Risk Diversification, Not Politics

People familiar with the discussions said China’s regulators framed the move as risk management rather than a geopolitical shift or a loss of confidence in U.S. creditworthiness. No specific targets or deadlines were provided for banks to adjust positions.

The guidance arrives as global investors debate the status of U.S. debt as a haven amid concerns about fiscal discipline and currency volatility.

Despite ongoing tensions, Beijing and Washington have maintained relatively stable relations following last year’s trade truce, with U.S. President Donald Trump and Chinese President Xi Jinping expected to meet in Beijing in the coming months.

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Market Reaction Remains Contained

Treasury prices eased slightly following the data, pushing yields higher by a tick, while the dollar weakened slightly against the major currencies. However, the market remained on a quiet cycle, with volatility measures for U.S. government bonds remaining close to a five-year low.

Source: Bloomberg

U.S. Treasury Secretary Scott Bessent pointed out that Treasuries had their best year since 2020, with the help of increased foreign participation in bond auctions. Foreign holdings were recorded to be at a historic high of $9.4 trillion as of November.

China’s Treasury Exposure Has Gradually Fallen

The overall Chinese holdings of U.S. Treasury securities, including the public and private sectors, have been steadily declining over the past decade. They currently stand at $683 billion in November, which is the lowest level since 2008.

It has been suggested that some of this decline could be attributed to the transfer of these holdings to custodial accounts in Europe, particularly in Belgium, which has shown a large increase in Treasury holdings in recent years.

The Chinese banks are known to hold approximately $298 billion of dollar-denominated bonds as of September, although it is difficult to say how much of that is in U.S. Treasuries. The global markets have undergone significant shifts this year, with a lot of movement in the bond market, currencies, and commodities.

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