China, Japan, UK Dump $81B in US Treasuries; China Boosts Gold Reserves

In a significant development, China, Japan, and the UK collectively reduced their holdings of US Treasuries by $81 billion in December 2022, according to data from the US Treasury Department. This move comes as China has been actively accumulating gold reserves, raising concerns about a potential strategic shift away from US dollar assets.

China led the trio in reducing its holdings, unloading $9.6 billion in Treasuries, bringing its total to $759 billion, the lowest since 2009. Japan sold off $27.3 billion in bonds, maintaining the position of the largest single holder of US Treasuries with $1.0598 trillion. The UK also significantly pared back its holdings, leading the pack with $44.1 billion in sales, leaving it with a total of $722.7 billion.

The retreat from US debt by these nations coincides with a period of high yields on 10-year Treasuries, hovering near 4.5%, and the Federal Reserve's ongoing quantitative tightening, which involves offloading $60 billion in Treasuries each month. This combination may be testing demand for US debt, as America grapples with a $2 trillion deficit and mounting borrowing costs.

Meanwhile, China has been aggressively accumulating gold reserves. After a six-month pause, China resumed buying gold in November 2022 and continued its purchases in December. By the end of the year, China's central bank had added about ten tons of gold reserves, bringing its total to 2,280 tons, according to data from the World Gold Council.

These developments underscore the potential for a strategic shift away from US dollar assets, as nations like China diversify their reserves and reduce their exposure to US debt. The implications of this trend on global financial markets and the US economy remain to be seen, but investors and policymakers alike will be closely monitoring the situation as it unfolds.