Analysts suspect China is routing US Treasury and mortgage bonds through Canadian banks

Recent Treasury figures reveal that Canada’s reported ownership of US government debt and federally backed mortgage bonds has jumped to almost $600 billion, more than four times the level five years ago, while China’s declared US Treasury holdings have halved since 2016 to roughly $618 billion. Experts propose that China may be transferring its US-dollar assets to Canadian banks, which would record the securities under Canada’s name, allowing Beijing to appear less dependent on the dollar without actually selling the bonds.

Brad Setser, who monitors international capital flows, says China is adept at concealing its dollar holdings. The surge in Canadian mortgage-backed securities, now about $162 billion up from $21 billion in mid-2021, aligns with a roughly 50 percent drop in China’s reported holdings of similar instruments. Vitaliy Liberman of DoubleLine and Alex Etra of Vanda Research cite Wall Street sources linking the pattern to China, though both acknowledge the lack of concrete evidence. Canadian and Chinese regulators declined to comment on the matter.