Reports this week showed that China sold US$47.8 billion worth of U.S. treasuries in December. This amount is equal to 3.7% of the country’s November holdings and represents the second largest amount ever.
During the same month, international investors other than China increased their holdings by 1.4%, making foreign holders of U.S. debt in total rise to a record of $5.79 trillion.
“The Chinese move to sell suggests central banks are becoming more wary of taking duration risk now with the Federal Reserve firmly into the tapering process,” said Aaron Kohli, an interest-rate strategist at BNP Paribas. “If China continues to sell again in the next month or two, than more worries will arise as to who will buy the country’s debt.”
The U.S. Federal Reserve cut its $85B a month bond buying program by $10B in January, and the same amount in February. Many economics believe this pace will continue at the same rate until the end of 2014.
“Treasuries were largely well-positioned to receive the December tapering announcement,” wrote Gennadiy Goldberg, a strategist at Toronto-Dominion Bank in New York, in a note to clients.