China Sells Treasuries for Third Straight Month

March 16, 2010 Updated: December 10, 2010

NEW YORK—China sold off a significant portion of U.S. Treasury bonds for the third straight month, said the U.S. Department of Treasury in a report released on Monday.

China’s December U.S. Treasury holdings decreased by $35 billion, as reported by the Treasury department. January securities holdings decreased by an additional $5.8 billion.

China still retained the position as the No. 1 holder of U.S. Treasuries Securities and the largest U.S. creditor among all nations at $889 billion. Japan also still retained its position as No. 2 with $765 billion.

Many analysts say the continuing sale of U.S. Treasuries by China could have a significant effect on many U.S. residents, causing mortgaged rates to increase.

“If this were to continue, if China were to stop recycling its dollars into U.S. Treasuries, it could have dire implications for Main Street America in that mortgage rates could move higher,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitisibishi UFJ Ltd. in an interview with Bloomberg.

The news of China decreasing its U.S. Treasuries holdings come at a difficult time between the two nations, as the United States seeks increased pressure on China to unpeg its currency, the yuan. A congressional hearing on Monday called for the Obama administration to put more pressure on Beijing to allow the yuan to float.

The undervaluation of the yuan has allowed for a massive trade imbalance, due to the artificially low prices of Chinese goods.

The U.S. Treasury is also expected to officially rule whether China is in fact a currency manipulator. If the answer is “Yes,” such a ruling would in theory trigger sanctions under U.S. law.