Quick overview

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Chinese regulators have recommended that financial institutions reduce their holdings of US Treasuries, citing worries about market volatility and concentration risks. According to people who asked not to be named to discuss private discussions, officials told banks to reduce their purchases of US government bonds and told those with significant exposure to reduce their holdings.

 

China’s state holdings of US Treasuries are exempt from the directive. According to the people, the guidance, which was verbally conveyed to some of the largest banks in the country in recent weeks, reflects officials’ growing concern that holdings of US government debt could expose banks to volatile fluctuations.

The concerns are similar to those expressed by governments and fund managers abroad, in the midst of a developing controversy regarding the dollar’s appeal and the safe-haven status of US debt

US treasuries fell in response to the news, with yields gradually rising across maturities. The dollar’s value declined marginally in relation to its major peers. As early as April, Donald Trump, who spoke with Xi Jinping over the phone last week, intends to meet the Chinese leader at a presidential summit in Beijing.

The regulatory guidance on Treasuries for Chinese banks was issued before last week’s call. The State Administration of Foreign Exchange reported that as of September, Chinese banks held approximately $298 billion in dollar-denominated bonds. How many of those were Treasuries is unknown.