China Pulls Investments from US Treasury Bonds in Favor of Europe
Many Chinese investors have reduced their exposure to US Treasury bonds, favoring European debt instruments amid escalating tensions stemming from the trade war between Washington and Beijing, according to Deutsche Bank.
Lillian Tao, head of China macroeconomic and global emerging markets sales at Deutsche Bank, told Bloomberg that Chinese investors are becoming less reliant on the US dollar in their portfolios and are shifting their focus to other markets.
Tao noted that high-rated European bonds, along with Japanese government bonds and gold, have become preferred alternatives for the bank’s Chinese investor clients, especially amid unstable geopolitical conditions.
Dollar-denominated assets have seen a significant decline in recent weeks, particularly after former US President Donald Trump escalated his assault on global trade by imposing sweeping tariffs on imports, which were then partially suspended for a temporary 90-day period.
China, the second-largest foreign holder of US Treasury bonds, has become a focus of discussion among analysts and investors, amid speculation that it may be a factor contributing to the recent turmoil in the US bond market.
Meanwhile, US Treasury Secretary Scott Besant denied any major selling by foreign governments.
Although rising yields on US Treasury bonds make them attractive investments, Tao emphasized that Chinese investors are extremely cautious about the US market given the difficulty of predicting US economic and trade policy moves.
She added that increased global volatility has prompted a growing number of Chinese investors to reconsider European markets, including bonds in Germany, Spain, and Italy, which had previously been off-limits to them, as the Chinese outlook for Europe has improved.
Tao continued that the outlook for European markets has become more positive after the German government approved a massive spending package, along with the possibility of the European Central Bank making further interest rate cuts.
“From a macroeconomic perspective, it’s time for Chinese investors to reevaluate their investment destinations and focus on more stable markets,” Tao concluded.
