Report: China May Stop Buying U.S. Treasuries

An employee puts Chinese one-hundred yuan banknotes in a money counting machine for a photograph at the Korea Exchange Bank headquarters in Seoul, South Korea, on Thursday, Feb. 27, 2014. Chinas central bank is forecast to double the yuans trading band in the coming quarter as policy makers loosen exchange-rate …
SeongJoon Cho/Bloomberg via Getty Images

Chinese officials have recommended that the government slow or halt its purchases of U.S. Treasuries, Bloomberg reported Wednesday.

China holds $3.1 trillion in foreign exchange reserves, making it the world’s largest holder. China’s central bank amasses dollars when the country turns a large trade surplus with countries such as the U.S. and when Chinese authorities manipulate their currency by selling it and buying dollars.

The market for U.S. government bonds has become less attractive relative to other assets, including sovereign debt issued by other countries, according to the Chinese review. Bloomberg notes that trade tensions with the U.S. may provide a reason to slow or stop buying the debt of the U.S. government.

It is not clear if the recommendations of the review have been adopted.

China is the biggest foreign buyer of U.S. Treasuries, largely as a result of the investment of assets it acquires by virtue of the large trade deficit it turns with the U.S. As such, a decision to avoid U.S. Treasuries or reduce its purchases could cause jitters in the world’s largest bond market.

China’s central bank liquidated a record amount of U.S. government bonds in 2016 to stabilize its currency. China resumed buying last year.

China tends to buy more U.S. Treasuries when bond yields are rising, which typically indicates faster economic growth and larger deficits.

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