Major foreign holders of the US treasury securities including China and Japan reduced their holdings in April as the US Federal Reserve continues to raise interest rates, newly released data from the US Department of Treasury reveled on Wednesday local time.

The US Federal Reserve announced on Wednesday a 75 basis points rate hike of its benchmark interest rate to the 1.50 percent to 1.75 percent range, the biggest rate hike since 1994.

China, the second largest holder of US treasury securities, reduced its holdings by $36.2 billion to a balance of $1.00 trillion in April, the lowest level since June 2010. This is also the fifth consecutive month that China has reduced its holdings, offloading a total of $77.4 billion over a five-month period.

Analysts noted that the increase of 75 basis points reflects the urgency of the crisis the US is currently facing, with more frequent and even large rate hikes expected amid a critical economic and social situation, which will significantly impact investment confidence.

The rate hikes will lead to a decline in securities prices, so investors have to reduce their holdings or even leave the market in a bid to avoid risk, Dong Dengxin, director of the Finance and Securities Institute of the Wuhan University of Science and Technology, told the Global Times on Thursday.

Japan, the biggest foreign holder of US treasury securities, reduced its holdings by $13.9 billion in April, with $1.22 trillion remaining, the lowest amount since February 2020.

Dong noted that the US is facing high inflation and a rising unemployment rate while its stock market has entered the bear market, with spiking interest rates likely to further aggravate the economic situation.

Under the current circumstance, investors are looking for safe havens such as China to hedge against risks, as the Chinese market is now one of the lowest risky and most stable markets globally, offering a hedging advantage.

Dong said that China has a far better market environment compared with the US market with a stable economic and social environment while effectively containing the spread of COVID-19.

He also stressed that the Chinese market is the second largest in the world in terms of scale of the stock and bond markets, closely following the US in the international market.

"The Chinese market is independent of the US and Western markets, and will not resonate with them, which can balance the volatility of the international market caused by the fluctuation of the US stock market," said Dong.

Federal Reserve Chair Jerome Powell said that a rate hike of 50 basis points or 75 basis points is most likely to be announced at the next meeting, but that the increase of 75 basis points hike is not expected to become the norm.

Global Times