China Cuts Holding Of U.S Debt Further, For The Fifth Month In A Row

China, the biggest buyer of US Treasury debt,  reduced its holdings of US Treasury bonds for a fifth month in a row in March, dropping the amount of those assets to $1.145T.

The figures were released by the US Treasury Department on Monday.

The cut reduces the amount of its holdings by $9.2 billion, about 1% of the total it owns, but this after a month after it had unloaded $600M worth of the bonds.

In exchange, in the same period, China bought $2.9B of long-term Japanese treasury bonds, the biggest purchase of debt China has made within a single month in more than six years.

"The central bank is continuing its strategy of diversifying the $3 trillion it holds in foreign exchange reserves," said Lin Songli, an economist at Guosen Securities Co Ltd.

He said China's decision to diversify its assets is reasonable. To protect itself from financial troubles, the country should invest in a variety of foreign currencies to reduce the risks inherent in holding such a large an amount of foreign exchange reserves.

"But diversification will be difficult because there are few alternatives (to US Treasury debt)," said Lin, predicting China will not continue to cut its holdings of US debt in the coming months.

The Wall Street Journal cited David Ader, an analyst at CRT Capital, as saying that it seems as if the US Treasury debt the country is selling is scheduled to mature soon. He added that China is taking on more exposure to debt with longer maturity dates issued by Fannie Mae, Freddie Mac and other government-sponsored enterprises, and is only slightly cutting its holdings of longer-dated Treasuries.

"Concerns have arisen that the United States may default on its debt, especially since US President Barack Obama said a failure to raise the nation's $14.3 trillion debt limit by early August might disrupt the world financial system and plunge the US into another recession".