This October, the value of US treasury bonds held by China reached their lowest level since February 2013. According to statistics released by the US Treasury, China held 1.25 trillion dollars of US treasury bonds and its net purchase of medium term and long term bonds was only 28.4 billion.

China is still the biggest holder of US bonds. The unloading has much to do with the Federal Reserve (FED) quitting quantitative easing (QE). Xia Taifeng, Director of the School of Finance of the Capital University of Economics, says that since the US abandoned QE, the market has paid close attention to the FED’s schedule of interest rate rise. A recent resolution from the FED has further confirmed the prospect of an interest rate rise, which is expected to happen in April 2015. This raising of the interest rate means that the price of US bonds will drop. Unloading US bonds is therefore a normal market operation.

"It is the time for the market to change direction. As an interest rate rise becomes a common expectation, even if the FED doesn't raise the interest rate at once, the peak price of US bonds belongs to the past. New divisions and unrest will appear in the security and currency market of the US," says senior financial commentator Ye Tan.

When the US begins to increase its interest rate, will China engage in large scale unloading of US treasury bonds?　

"China is the biggest holder of US bonds. If China unloads too many bonds, the market will come under pressure and the price of the US bonds will crash, which will result in bigger losses to China. In the financial market, major investors don't have the same flexibility as small investors," says Xie Taifeng.

Foreign exchange reserve investments consider security and liquidity as priorities, so China is not about to start any significant unloading of US bonds. For China and many countries, the US treasury bond is still a relatively stable financial instrument. 

The article is edited and translated from《中国不会大规模减持美债》, source: People's Daily Overseas Edition, author: Luo Lan.