China reduces US Treasury holdings by 3.6%

China sold US$32.5 billion of US Treasury bonds in May, state media reported, citing the US Treasury Department. The country remains the largest holder of US government debt with US$867.7 billion. The sale was likely made with an eye on the US Dollar Index, which rose abruptly in May due in part to the crisis in the euro zone. At the same time, China’s net foreign reserves fell by approximately US$51 billion even as its trade surplus and foreign investment flows burgeoned. Beijing has increased purchases of Japanese government bonds, plowing US$6.2 billion into yen-denominated bonds from January to April, but has reduced purchases of euro-denominated bonds.