China cuts US Treasury holdings to 18-year low amid Iran conflict and Fed uncertainty

Data released by the US Treasury Department indicate that China’s holdings of US government bonds dropped to $633.4 billion in June, down from $659.3 billion the month before and the lowest since September 2008. This reduction reflects Beijing’s ongoing effort to diversify its foreign-exchange reserves amid rising geopolitical strain, notably the renewed US-Iran hostilities that sparked concerns over oil supply disruptions.

The same period saw the first policy meeting of Federal Reserve chair Kevin Warsh, whose brief post-meeting statement and decision not to provide a rate outlook limited market guidance. Treasury yields have risen, especially on the longer end of the curve, as investors weigh Washington’s fiscal outlook and the Fed’s ambiguous stance. Foreign investors’ total US Treasury holdings fell to $9.299 trillion in June from $9.371 trillion in May. Analysts view the combined effect of regional conflict risk and US monetary-policy uncertainty as a catalyst for China’s portfolio adjustment.