Has the global ‘de-dollarization’ movement accelerated? A number of factors are driving foreign investors to sell off U.S. debt.
China's holdings of U.S. Treasuries fell by USD 22.6 billion to USD 980.8 billion in May, down 9% from a year ago and the first time since May 2010 that its position was less than $1 trillion, according to the U.S. Treasury Department's international capital flows report (TIC) for May released on July 18 EST.
Among the major countries and regions holding U.S. Treasuries, China was also the largest seller in May. According to the TIC report, China sold USD 100 billion of U.S. Treasuries in the six months before May.
Apart from China, another large overseas U.S. debtor, Japan, also continues to sell U.S. debt. Japan's holdings of U.S. Treasuries fell by USD 5.7 billion in May from a year earlier to USD 1.2128 trillion and have been decreasing for the third consecutive month. However, Japan is still the largest holder of U.S. debt.
The reduction of U.S. debt holdings by many countries and institutional investors worldwide is also a reflection of the global "de-dollarization" process. According to ZeroHedge statistics, global U.S. debt reserves have continued to decline over the past two years. At the same time, the global reserves for gold are climbing.
Several factors are pushing foreign investors to sell U.S. debt. On the one hand, the Fed is in the midst of an aggressive rate hike, driven by inflation, and is expected to raise rates by at least 75 basis points again next week. Higher U.S. bond yields mean lower bond prices, which can be costly for investors who don't plan to hold to maturity.