Thursday, May 23, 2019

Has China Started Weaponizing Its US Treasuries Holdings?

The Financial Times reports:
It was an unnerving piece of data for investors last week, buried halfway down an esoteric spreadsheet released by the US government that tracks how many Treasuries foreign investors buy and sell.

China, the largest foreign creditor to the US government with total Treasury holdings in excess of $1.2tn, sold $20bn of securities with a maturity exceeding one year in March, according to US government data. The sales amounted to China’s largest retreat from the market in more than two years.

The move came shortly before tensions over trade between Beijing and Washington heated up again, with the US slapping additional tariffs on the country’s imports and Chinese officials retaliating with measures of their own. What is more, the sales could not be explained away by the typical ebb and flow of China’s Treasury holdings that result from managing its large reserves to keep the currency stable.

The data reignited fears that Beijing may weaponise its holdings as part of the trade war...
One outlier sale of $20bn in securities does not in itself indicate weaponization of the securities. It could be nothing or it could be a warning shot by China across the bow.

But if the Chinese government does go nuclear and rapidly sell its holdings, not likely at this time, it would rock global markets and send the interest rates of US Treasury securities to levels not seen in more than a decade.

It is important to keep in mind that President Trump's style of "negotiating" has only one mode: bullying. If he is not careful, he may push a world leader, including Chinese President Xi Jinping, to use a nuclear option. It should be noted Xi has recently flexed China's muscles in the direction of potentially cutting off supplies of rare earth materials, needed by huge swaths of the U.S. economy, by visiting the rare earth mining facilities in China.


1 comment:

  1. China is desperately trying to generate global currency velocity in order to hope to be able to float a strong entry in the future reserve drawing basket. People have such smug confidence in the petro dollar but the US govt is pissing off people at a record rate.

    Blowback is real and when it comes ...