China fuels US bond rout by slashing holdings to 14-year low as Washington-Beijing tensions drag on

• China cut its holdings of US Treasurys to a 14-year low in June.
• Bond prices have tanked in 2023 with investors fretting about the Federal Reserve's interest-rate hikes.

China slashed its holdings of Treasurys to a 14-year low in June, as tensions between Washington and Beijing persist and the US's rivals try to undermine the dollar's supremacy.

The world's second-largest economy trimmed its exposure to American government debt to by $103 billion, or 11%, according to Treasury Department data published Tuesday.

It's the third straight month that Beijing has sold Treasurys and brings its total holdings to their lowest level since May 2009, per the South China Morning Post.

Bond prices have tanked in 2023, with 2-year yields jumping 169 basis points and returns on 10-year notes spiking 127 points as investors fret about the longer-term impact of the Federal Reserve's aggressive interest-rate hikes and the government's issuance of fresh debt.

China appears to be fueling the rout, with authorities locked in a geopolitical battle with the US and engaging in dedollarization, a co-ordinated effort to chip away at the buck's dominant role in international trade.

It's likely to carry on cutting its US debt holdings over the next few months, according to experts.

"The proportion of US debt in China's foreign exchange reserves is expected to continue decreasing," said Peking University economics professor Tang Yao told the state-run publication China Daily on Wednesday.

Japan also slashed its exposure to Treasurys in June, per Tuesday's data, while both the UK and Belgium ramped up their spending on US government bonds by over $50 billion.