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Treasuries and Geopolitics

China continues to unload US treasuries at a firm pace. In the latest treasury holdings teport, China is shown to have sold $22.7bn in February, bringing its total holdings to $775bn, almost half of what it owned 1 years ago. Tariffs against Chinese EVs, or the fact that the U.S. can seize US assets of a foreign country, approved by Congress recently, are some of the reasons behind this decision. But perhaps the most important one is that the U.S. is running a big budget deficit and needs to issue more debt, which in turn affects the value of the U.S. dollar. That’s why also China has been buying gold aggressively over the last few months, and it’s expected to continue. Coincidently, in the last FOMC meeting, chairman Powell announced a slower runoff of the Fed’s Treasury portfolio, perhaps to avoid an avalanche of paper that can push yields way above 5%. Lastly the biggest Treasury holder, Japan, is fighting to defend the weakening of the Yen, and they might need additional reserves to continue the fight.

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