Chinese President Xi Jinping
Alexander Ryumin | TASS | Reuters
As trade tensions with the US intensified, China sold its government bonds at the fastest pace in about two years in March.
The largest foreign owner of US debt reduced the level by just under $ 20.5 billion. The slight decline reduced total assets to $ 1.12 trillion. However, the move represents a persistent pattern of declines as the two sides have not been able to reach a long-term trade agreement and instead have waged an expanded tariff battle in recent days.
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Sales have shaken the bond market before. It is believed that not only has China resorted to punitive measures, but has also reduced its stocks to defend its currency.
Aggressive stock removal measures are seen as a nuclear option that could further aggravate the ongoing trade negotiations.  However, the impact of such measures is unclear.
UBS estimates that a gradual reduction in 10-year Treasury note yield is likely to result in a 0.4 percentage point increase in the benchmark.
"To the extent that China's government bond sales could be the cause or effect of a more risk averse global environment, the positive impact on government bond yields could be lower than expected as private investors strengthen their purchases of government bonds," said UBS strategist Chirag Mirani and others stated in a customer message.
China's share of total US debt relative to other countries in the world dropped to 17.3%, the lowest level since June 2006. Japan remains the second-largest holder at $ 1.08 trillion, while the United Kingdom retired to third place when it raised its level to $ 317.1 billion.
The foreign government's share of US debt reached a new record of $ 6.47 trillion, exceeding $ 22 trillion. Foreign residents increased their holdings by $ 23.9 billion.