China, Japan trim US treasury bonds in May amid growing US economic risks: experts

China and Japan trimmed their holdings of US Treasury bonds in May in a move that reflects the growing worry about US economic risks, experts said. 

According to data from the US Department of the Treasury on Thursday local time, China reduced its holdings of US Treasury bonds by $2.4 billion in May to $768.3 billion, marking another decrease after increasing its holdings for the first time in April this year.

As the second largest foreign holder of US Treasury bonds, China's holdings have been below $1 trillion since April 2022, and have been decreasing steadily.

In January 2024, China reduced its holdings of US Treasury bonds by $18.6 billion. This was followed by further reductions of $22.7 billion and $7.6 billion in February and March, respectively. 

Japan, the largest holder of US debt, also reduced its holdings of US Treasury bonds by $22 billion in May, with total holdings being $1.1283 trillion. 

Experts believe the reduction in holdings of US Treasury bonds reflects concerns about the risks associated with the US economy. Foreign investors may be worried that a slowdown in the US economy could affect the return on their investments in US bonds.

According to the Federal Reserve's Beige Book report released on Wednesday, it is predicted that the economic growth in the US will slow down in the next six months.

Expectations for the future of the economy were for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation, the report said.

The report is based on information that Federal Reserve Bank gathers anecdotal on current economic conditions in its District.

While seven Districts reported some level of increase in economic activity, five noted flat or declining activity—three more than in the prior reporting period in May.