Over the years, China has consistently been the second-largest foreign holder of U.S. Treasury securities, just behind Japan.

Its holdings peaked in November 2013 at a historic high of $1.3 trillion, after which the volume steadily declined.

In April 2022, it fell below the trillion-dollar mark, and by March 2024, China's holdings of U.S. debt had dropped to $767.4 billion, the lowest level since 2009.

However, after reducing its holdings by $18.6 billion, $22.7 billion, and $7.6 billion in the first three months of this year, China unexpectedly increased its holdings by $3.3 billion in April, halting a three-month decline and lifting its holdings above the 2009 low.

Amidst the general trend of continued reduction, what's behind this unusual move?

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On June 18th local time, the U.S. Department of the Treasury released the latest report on international capital flows (TIC), which is published with a two-month delay.

Japan remains the largest foreign holder of U.S. Treasury securities, with holdings of $1.15 trillion in April, a decrease of $37.5 billion from the previous month, marking a new low in four months and ending a six-month increase.

The United Kingdom, ranked third in holdings, saw its holdings decrease by $17.9 billion to $710.2 billion in April.

With the Bank of Japan purchasing almost all of its assets in U.S. Treasury securities, accounting for over 90% of its foreign exchange reserves, the rapid depreciation of the yen at the end of April led the central bank to intervene in the currency market, selling dollars and buying yen.

With insufficient liquid funds, some analysts believe Japan may have obtained funds by selling U.S. Treasury securities.

Mainland China remains the second-largest foreign holder of U.S. Treasury securities, with holdings increasing by $3.3 billion to $770.7 billion in April, marking the first small increase since the beginning of 2024 after a continuous reduction in the first quarter.

With the current total of U.S. Treasury securities at $34 trillion, a monthly increase of $3.3 billion is almost negligible and does not constitute the so-called "picking up the slack."

Even our holdings of more than $700 billion in U.S. debt only account for about 24% of our $3.2 trillion in foreign exchange reserves.

The TIC report published by the U.S. shows valuations, not the original purchase amounts, and includes not only central banks but also other investors.

As is well known, bond prices are inversely proportional to yields; the higher the yield, the lower the price.

The U.S. CPI data released in April showed persistent high inflation, and the market has reduced the possibility of the Federal Reserve cutting interest rates in the short term.

The yield on U.S. Treasury securities once reached the highest level in five months, rising by about 48 basis points over the month, causing a decline in U.S. Treasury prices.

Market participants buying on dips is also a normal investment behavior for value-added.

There are usually three factors affecting the holdings of U.S. Treasury securities: First, the rise and fall of U.S. Treasury prices will cause changes in valuations.

For example, Xiao Ming buys 10,000 shares at a price of 1 yuan per share, with a market value of 10,000 yuan.

A month later, the stock price drops to 0.5 yuan per share, and Xiao Ming's 10,000 shares are now worth only 5,000 yuan, with a paper loss of 5,000 yuan.

If he chooses to sell at this point, the paper loss will turn into an actual loss.

Second, market investors buy on dips.

In April, the yield on U.S. Treasury securities rose to a nearly five-month high, and the prices of U.S. Treasury securities were relatively low, allowing for the purchase at a low price and sale at a high price to earn the difference.

Third, central banks hold U.S. Treasury securities primarily for safety and preservation of value.

A relatively safe approach is to let the principal and interest mature without renewal, ensuring no loss risk.

Given the current size and issues of U.S. Treasury securities, relying solely on external investors to increase holdings by a few billion dollars a month is like using a cup to bail out a boatload of water; it won't solve the problem, and no country is willing to be the "picking up the slack" party.

Ultimately, the Federal Reserve is the one that will bear the burden.

In other words, an unexpected increase in a particular month does not mean that there will be a large-scale increase in the future.

The current trend remains stable with a gradual and orderly reduction.

Don't put all your eggs in one basket.

Given the complex and variable international situation, considering safety and returns, diversifying overseas assets, optimizing asset structure, and China's continued reduction in U.S. Treasury holdings is a wise move for being prepared for the future.

There is no need to overinterpret sudden increases in a particular month.