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🇨🇳 China is selling US debt: politics or risk aversion?
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☝️ Beijing is actively getting rid of US securities: from January 2022 to January 2023, China's position in US Treasuries decreased by $174.4 billion, or 17%. The question arises: where is the money?
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Alas, due to the rate increase, the US Treasuries price index fell by 7.7%. Taking into account the market revaluation, it turns out that over the year the volume of American debt in Chinese reserves also decreased – by about $100 billion, or 10%. And it is not a fact that all these securities were sold on the open market – some of the bonds could simply be redeemed.
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So ...
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• Part of the currency was clearly used to support the yuan against the dollar and offset the record budget deficit.
• China has increased the amount of gold in its reserves for the year by 2.5 million ounces. With an average gold price of $1,802 per ounce, that's about $4.5 billion. On the scale of the US Treasury sell-off, China's gold investment looks meagre.
• Debts of other countries or other US securities: over the year, China's foreign exchange reserves decreased by $37 billion, while the volume of Treasuries decreased by $174.4 billion ($100 billion, taking into account market revaluation).
• A significant part of the proceeds from the sale of US Treasuries was directed to other securities – US agency bonds. Such securities are issued by government-sponsored entities such as mortgage agencies Fannie Mae and Freddie Mac. The yield of such securities is higher than that of ordinary Treasuries.
• Over the year, China's investment in US agency bonds increased by $55 billion (+27%).
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So the wording «Beijing is getting rid of the dollar» is at least incorrect. China is selling US government debt to reinvest in other US debt – US agency bonds. China is just diversifying its investments in different types of American papers. But against the backdrop of the Fed's policy, such diversification looks illogical and useless.
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And what do you think?
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Profits to y’all!