China Warns Banks to Rein in Holdings of US Treasuries

Summary

Bloomberg's Ven Ram discusses China's reported guidance to banks to trim US Treasury exposure, framing it as part of a gradual diversification away from US assets. He says the immediate Treasury reaction has been muted but sees longer-term pressure on long-dated Treasuries. If China diversifies further, he views Japan as unattractive due to BOJ normalization and Germany as a natural destination for reserve holdings. He also says a possible Fed-Treasury accord under Kevin Warsh remains an open question.

• Chinese regulators reportedly advised banks to reduce US Treasury holdings.
• China's Treasury holdings have fallen to about $682 billion from $1.3 trillion over a decade.
• Ven Ram says the shift away from US assets is gradual and bank holdings are less consequential.
• He sees long-dated Treasury yields biased higher over the longer term.
• Japan is seen as an unattractive reserve destination as BOJ normalization risks bond losses.
• Germany is viewed as a natural home for Chinese reserve diversification.
• A possible Fed-Treasury accord under Kevin Warsh remains unresolved.