China cuts U.S. treasury holdings

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The US Treasury Department issued a report on Monday saying that China has trimmed its portfolio of foreign financial assets. The report says China reduced its holdings of US Treasury debt in June by its widest margin in nearly nine years.

The report says China slashed its holdings by 3.1 percent, from 800 billion US Dollars in May to 770 billion Dollars in June. So far, it has been the largest reduction of US Treasury debt by China this year. Experts say China is opting for long-term US Treasury bills in light of renewed optimism over the global economy.

Xu Fan, a staff from Bank of China, said, "The US Treasury debt reduced this time involves primarily short-term bills. I believe that is because since the global recession began in September of last year, China has been buying massive amounts of short-term US Treasury bills. Most of the bills China sold were due in June, when people were more optimistic about the global economy. So it is natural for China to think twice before investing in short-term bills, which yield relatively lower returns compared with other alternatives."

Interest rates on six-month US Treasury bills fell on Monday to 0.27 percent, the lowest level this year. That means the bills are now selling at less than face value.

Despite the cut in June, China is still the biggest holder of US Treasury debt. On the other hand, both the second-largest holder, Japan, and the third-largest holder, the UK, increased their holdings in June.