China clients shift from US assets amid dollar, treasury concerns
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Deutsche Bank reports a growing trend of Chinese clients reducing exposure to US assets, including Treasuries and the US dollar, in favor of Europe and other markets.
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The likeness of George Washington is seen on a US one-dollar bill, March 13, 2023, in Marple Township, Pa (AP)
Chinese clients are scaling back their holdings of US Treasuries in favor of European debt, as trade tensions and economic uncertainty under US President Donald Trump prompt a reassessment of overseas investments, according to Deutsche Bank AG.
“We have observed some diversification away from the US dollar in Chinese investors’ portfolios,” said Lillian Tao, head of China macro and global emerging market sales, in an interview.
She noted that Chinese interest in alternative markets, particularly in Europe, has gained momentum.
Declining Confidence in Treasuries and the US dollar
Tao highlighted that European high-quality bonds, Japanese government bonds, and gold are emerging as preferred alternatives to Treasuries among Chinese commercial clients investing abroad.
The shift comes as dollar-denominated assets experience heightened volatility. Recent turmoil has cast doubt on their status as traditional safe-haven investments, especially amid Trump’s aggressive trade policies.
As the second-largest foreign holder of US Treasuries, China’s investment behavior is drawing increased scrutiny. US Treasury Secretary Scott Bessent recently dismissed speculation that foreign investors were offloading Treasuries en masse.
Still, some see value in the current yields. “Several Chinese clients think the current market level of Treasury yields is very attractive after the selloff,” Tao said. However, she added, “they are also extremely cautious whether it is a good entry level or just a falling knife” due to increasing unpredictability in US economic policy.
Read more: Chinese holdings of US Treasuries fall to lowest point since 2019
US Treasuries face historic selloff amid sweeping tariffs
US Treasuries, long considered the bedrock of the global financial system, came under heavy selling pressure earlier in April, signaling growing investor unease as turmoil caused by sweeping US tariffs sparked forced selling and a scramble for cash.
The dollar, another traditional safe haven, also weakened against major currencies, underscoring shaken confidence in the world's largest economy.
Ten-year Treasury yields have surged 44 basis points to 4.44% this week alone, on track for the biggest weekly jump since 2001.
The sharp selloff in the $29 trillion Treasury market has dragged borrowing costs higher across the globe, raising urgent concerns among central banks and policymakers already grappling with an economic slowdown triggered by the highest US tariffs in more than a century.
Europe emerges as an investment hub
Against a backdrop of rising market volatility, interest in Europe has grown. “An increasing number of Chinese clients started looking at German bunds, Spain, or Italy markets that they hadn’t paid a lot of attention to before,” Tao noted.
European market prospects have been buoyed by recent policy developments, including Germany’s approval of a landmark spending initiative and the potential for additional interest rate cuts by the European Central Bank.
“Given the macro factors, it is a rethinking time for Chinese investors to reallocate into the more investable countries,” Tao said.
Read more: US no longer seen as safe haven by global investors: Axios
