Amid the rising interest rates that have made Treasury’s potentially less attractive, Chinese holdings of U.S. debt had fallen below $1 trillion for the first time in 12 years.
According to Treasury Department data released on Monday, the Chinese portfolio of U.S. government debt in May dipped to $980.8 billion, continuing a trend that began early in 2021. That is a decline of almost 23 billion from April and down nearly $100 billion, or 9%, from the earlier month.
This also marked the first time since May 2010 that China’s holding fell below the $1 trillion mark. While China stepped down to second place, Japan is now the number one leading holder of U.S. debt with $1.2 trillion.
The debt declined due to the fact that the U.S. Federal Reserve has been raising rates to suppress the inflation going rampant. When rates rise on bonds, prices drop, resulting in a capital loss for investors who sell the bonds ahead of maturity.
The drop in China’s share also has been connected to Beijing re-balancing its foreign debt portfolio.
