In a move described as "monetary policy on tiptoes" by Charlie Garcia in an opinion piece published on MarketWatch, the Federal Reserve has quietly executed a series of purchases of US Treasury bonds worth up to $43 billion. This action came right after China sold off a large amount of US bonds, raising suspicions that the Fed is conducting "stealth QE."

The Fed explains this as a "normal reinvestment" activity

For a long time, the Fed has asserted that these bond purchases are merely a reinvestment of maturing assets, aimed at maintaining the size of the balance sheet. However, the timing and scale of this buying activity have led many experts to believe that the Fed is subtly implementing monetary easing measures to control interest rates and money supply without heightening market concerns about inflation or excessive intervention.

China sells nearly $19 billion in US bonds

According to newly released data from the US Treasury, in just March, China sold $18.9 billion in US Treasury bonds. This is one of the largest sell-offs in recent times, raising concerns that Beijing is continuing to diversify its foreign exchange reserves, gradually reducing its dependence on the USD amid escalating geopolitical tensions.

Meanwhile, most other countries have increased their holdings of US bonds, indicating that the demand for this safe asset remains very high.

The ranking of countries holding US bonds changes

With this sell-off, China has fallen to third place in the list of countries holding the most US bonds, after:

  • Japan: $1.130 trillion

  • United Kingdom: $779 billion

  • China: $765.4 billion

This is a clear sign that China is gradually divesting from the US public debt market — a trend that has been occurring for many years but now seems to be accelerating.

Summary

The Fed's unexpected large-scale bond purchases at the same time that China significantly reduced its holdings have raised many questions about the US's covert monetary policy. Although the Fed insists this is merely a reinvestment activity, the scale and timing have made it impossible for the market to ignore.

In the context of a volatile geopolitical and global financial landscape, any moves from major economies like the US and China can create strong spillover effects in international financial markets.