BLOOMBERG - September 19, 2018: The article highlights that China’s holdings of U.S. Treasuries fell to a six-month low in July, just as a trade war between the world’s two largest economies began heating up.

China’s ownership of U.S. bonds, bills and notes slipped to $1.17 trillion, the lowest level since January and down from $1.18 trillion in June, according to data released by the Treasury Department on Tuesday (September 18).

Japan remains the largest foreign investor in Treasuries after China, increased its holdings in U.S. Treasury bonds, as did Saudi Arabia, Taiwan, Singapore and France.

(BattleForWorld: New U.S. Treasury bonds were sold to Japan, Saudi Arabia, Taiwan, Singapore and France so that the U.S. can create more debt to extract funds to finance its budgets.)

The first salvos in the U.S.-China trade conflict were fired on July 6, when the Trump administration activated tariffs on $34 billion of Chinese goods, which sparked immediate in-kind retaliation from Beijing. The escalation caused the yuan to drop roughly 2 percent in July, suggesting that the Asian nation shed U.S. bonds as a way to sell dollars and support its currency, according to NatWest Markets.

“It doesn’t surprise me, given the weakening of the yuan over the course of the month of July (BattleForWorld: Due to the tariff war.),” said John Briggs, head of strategy for the Americas. “They could be diversifying their holdings, of course, but that could be the reason.”

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