China dumps US debt at fastest rate since 2008 ahead of market turmoil, report reveals

China reduced its holdings of US government bonds in June to their lowest level in nearly 18 years, as Beijing continues its strategy of diversifying its foreign exchange reserves amidst heightened geopolitical tensions and uncertainty surrounding US monetary policy. According to Treasury Department data, Chinese Treasury holdings declined to $633.4 billion in June, down from $659.3 billion in May. This represents the lowest level recorded since September 2008. At the same time, total foreign debt holdings of US Treasuries slipped to $9.299 trillion across global markets. During the same month, hostilites between the US and Iran reignited before a temporary ceasefire managed to temper fears of a wider military escalation. Global markets continue to monitor the risk of fresh conflict, potential oil supply disruptions, and the broader implications for economic growth prospects and inflation. June also marked the first monetary policy meeting under newly appointed Federal Reserve Chairman Kevin Warsh.

The concise post-meeting statement and his decision to forego publishing interest rate projections left investors with fewer signals regarding the Fed's future moves. Meanwhile, Treasury bond yields climbed to multi-year highs, particularly on longer-dated maturities, driven by rising concerns over US fiscal sustainability. The 30-year Treasury yield reached 5.31%, its highest point since 2007, while the benchmark 10-year yield settled at 4.724%. Japan and the UK also pared back their allocations to American government debt. China now occupies third place among the largest foreign Treasury holders, positioning itself behind both Japan and the UK. Concurrently, Beijing is systematically bolstering its foreign exchange reserves with gold, which is viewed as a hedge against geopolitical and market risks. In July, China's central bank expanded its gold reserves for the 21st consecutive month, bringing its total holdings to 76.08 million fine troy ounces.

US: 30-year Treasury yields hit highest level since 2007

At the same time, the US Treasury market—the bedrock of the global financial system—is enduring severe structural strain. The yield on the 30-year US Treasury bond spiked to 5.32%, marking its highest level since 2007. Over the previous month alone, the 30-year yield surged by 40 basis points, representing its sharpest monthly gain since December 2024. Investors remain notably cautious regarding American debt instruments, primarily due to resurgent inflation pressures, as collapsed US-Iran peace negotiations and crude oil rising above $90 per barrel fuel expectations of prolonged monetary tightening. Secondarily, expanding fiscal deficits and an surging issuance of new Treasury supply needed to fund government spending continue to depress bond prices and push yields higher. A third factor stems from corporate bond competition, with major AI hyperscalers launching massive debt offerings that compete directly with the US government for private capital. Finally, market participants express lingering uncertainty regarding policy clarity and forward guidance from the Federal Reserve leadership.

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