China’s holdings of U.S. debt have dropped below $1 trillion U.S. for the first time since 2010 as
higher interest rates make American Treasuries less appealing.
China’s portfolio of U.S. government debt in May dropped to $980.8 billion U.S., according to
U.S. Treasury Department data. That’s a decline of nearly $23 billion U.S. from April, and down
nearly $100 billion U.S., or 9%, from a year ago.
It also marked the first time since May 2010 that China’s holdings of U.S. government debt fell
below the $1 trillion U.S. threshold. Japan is now the largest holder of American debt with $1.2
trillion U.S.
The debt decline comes as the U.S. Federal Reserve continues to raise interest rates to slow
inflation that’s running at a 40-year high.
When interest rates on bonds increase, prices drop, leading to a capital loss for investors who
sell the bonds before they mature.
The decline in China’s share of U.S. debt instruments has also been attributed to Beijing
working to diversify its foreign debt portfolio.
The U.S. Federal Reserve is widely expected to lift its benchmark interest rates by 0.75
percentage points at its next meeting on July 27.
