China tells banks to curb US Treasury holdings to limit market risk
China has advised banks to reduce exposure to US Treasuries amid fears of market volatility, as Beijing’s holdings fall to an 18-year low.
Bloomberg reported, citing sources, that Chinese regulators have advised financial institutions to reduce their holdings of US Treasuries, citing concerns over risks linked to market volatility.
According to the sources, officials have urged banks to limit purchases of US Treasuries and instructed those with large existing positions to begin selling gradually. The guidance applies only to banks’ investment portfolios and does not affect bonds held directly by the Chinese government.
The message has been conveyed to major banks over the past few weeks, reflecting Beijing’s caution that excessive US Treasury exposure could leave banks vulnerable to swings in the market.
The concern echoes an ongoing debate among global funds over whether US Treasuries and the dollar remain as safe and attractive a haven as before.
The sources said the move is aimed at diversifying financial risk rather than signalling geopolitical intent or a loss of confidence in the United States. No specific sales targets or timetable were set. While US-China relations remain strained, the overall picture has appeared steadier since last year’s trade truce talks.
After the report, US Treasury prices fell and yields rose. The 10-year US Treasury yield climbed by 0.04 percentage point to 4.25%, from around 4.22% previously, while the 30-year yield rose 0.03 percentage point to 4.88%. The Bloomberg Dollar Spot Index slipped 0.2%.
The report said the guidance came before US President Donald Trump’s phone call with Chinese President Xi Jinping last week, and that the two leaders are expected to meet at a summit in Beijing in April.
Latest data show Chinese banks hold about US$298 billion in dollar-denominated assets, though it is unclear how much of that is in US Treasuries. China’s central bank has yet to comment.
Official data also show foreign holdings of US Treasuries increased to a record US$9.4 trillion in November, more than US$500 billion higher than a year earlier.
China’s concerns come as global investors increasingly question the US government’s fiscal discipline, as well as Trump’s policies that could affect the dollar and the independence of the US Federal Reserve (Fed).
Deutsche Bank analysts have warned that European investors may cut exposure to the US to avoid the impact of Trump’s tariffs. Meanwhile, US Treasury Secretary Scott Bessent countered that the US bond market delivered its best performance in years and has seen record foreign demand—particularly as the Fed begins cutting interest rates, making yields attractive again.
Over the past decade, China has steadily reduced its US Treasury holdings and has been overtaken by Japan and the United Kingdom. China’s holdings have nearly halved from their 2013 peak, falling to the lowest level since 2008.
