Liquidation of China’s U.S. Bond Holdings Breaks Record in August

China’s ongoing selloff of U.S. Treasury Bonds is a strong indicator of an impending crisis in global fiat currency debt markets.

What may appear to be small ripples in financial markets often foreshadow monumental waves that can reshape the financial landscape. Such is the case with the ongoing selloff of China’s U.S. bond holdings.

This liquidation trend may well be an unequivocal indication of an approaching crisis in U.S. dollar credit and bond markets, hinting at the logical conclusion of the global fiat currency debt system.

“China’s divestment of U.S. Bonds and Equities is more than just a financial transaction; it is a signpost on the roadmap to the collapse of the fiat currency system and the rise of a new asset-backed system via an RV/GCR”

The financial markets have been saturated with discussions about rising yields, with experts offering various explanations for the recent credit/bond market phenomenon. However, we cannot ignore the prominent role played by a significant player on the global stage—China.

China’s consistent and aggressive selloff of U.S. Treasuries, spanning 20 of the past 22 months, is not merely an isolated act but rather a pivotal piece of a broader puzzle.

I view China’s deliberate divestment of U.S. bonds as a compelling indicator of an impending crisis in U.S. dollar credit and bond markets, ultimately hinting at the fate of the global fiat currency debt system.

I further believe we are witnessing the increasing tremors of a seismic shift in the foundations of the global financial system.

In recent months, the world has witnessed tumultuous movements in financial markets, particularly in the United States, leading to growing concerns about rising yields and their impact on global economies.

While mainstream pundits debated the causes behind these changes, it has become increasingly clear that one of the major players affecting U.S. bond markets is none other than China’s U.S. bond holdings.

In August, Chinese investors executed the most substantial liquidation of U.S. bonds and stocks in four years, raising questions about their motives and the consequences for the global financial landscape.

The data from the U.S. Treasury reveals a striking trend – China has been actively reducing its holdings of U.S. Treasuries for the past 22 months, with an eye-catching 20 of those months witnessing a consistent selloff.

While there are various theories to explain rising yields, it appears that China’s aggressive selling of U.S. Treasuries plays a pivotal role in this equation. Foreign central banks have also been involved in this selloff, notably dumping the most Treasuries since the beginning of the year.

However, the situation is more complex than it initially appears, as a broader perspective unveils a more intricate narrative. According to Bloomberg, in August, Chinese investors liquidated substantial amounts of U.S. bonds and stocks. This raises speculation that Beijing may be using these measures to protect its currency, the yuan, as it continues to weaken against the U.S. dollar.

The parallels with Russia’s decision to offload its Treasury holdings in 2018, preempting the weaponization of the U.S. dollar against it, are hard to ignore.

Given China’s territorial ambitions, such as the potential annexation of Taiwan in the future, it is prudent to consider that they might be distancing themselves from U.S. Treasury holdings, anticipating potential financial constraints similar to those faced by Russia.

Analyzing the specifics of China’s U.S. bond holdings liquidation in August, the bulk of the $21.2 billion in sales comprised Treasuries and U.S. equities. Contrary to the belief that China refrained from selling U.S. Treasuries, the data shows that they actively reduced their holdings of these government securities.

This selloff occurred as the onshore yuan experienced a significant depreciation against the U.S. dollar, reaching its lowest point since November 2022.

This led Beijing to instruct state-owned banks to intervene in the currency market to stabilize the yuan’s value, reinforcing the theory that the liquidation was intended to amass U.S. dollar cash reserves for potential intervention operations.

However, this liquidation might be part of a broader strategy to ensure China has access to U.S. dollars when needed to safeguard the yuan.

A similar rationale could apply to the sale of U.S. equities in their portfolio. In August, Chinese investors also sold a record $5.1 billion worth of U.S. stocks, notably around the same time when the S&P index witnessed a significant drop following the Federal Reserve’s final rate hike decision in late July.

The August selloff of U.S. treasury and agency bonds raises questions regarding the demand for U.S. debt, which has traditionally been a cornerstone of the global fiat financial system.

In conclusion, the ongoing liquidation of China’s U.S. bond holdings, particularly in August’s record-breaking selloff, is sending ripples through the global financial markets. While the exact motivations behind this move remain speculative, the possibility that China is preparing for economic contingencies and potential challenges, such as a weakened yuan or geopolitical concerns, cannot be dismissed.

The ongoing crisis in U.S. dollar credit and bond markets poses a fundamental question about the sustainability of the current fiat currency debt system.

In my view, China’s divestment of U.S. Bonds and Equities is more than just a financial transaction; it is a signpost on the roadmap to the collapse of the fiat currency system and the rise of a new asset-backed system via an RV/GCR.