China sells Treasurys again

China sold U.S. government bonds in June for the second straight month, Treasury said.

China's official stock of Treasury securities dropped to $844 billion at June 30 from $868 billion in May, the government said Monday. China's U.S. Treasury stash has slimmed by 6% over two months.

Still no rate rise, though.

Market watchers keep an eye on the numbers because the U.S. uses overseas financing to fill a large budget gap. Some economists have long warned that a pullback by foreign creditors led by the United States' biggest lender, China, could precipitate a crisis here by sending domestic interest rates soaring.

But to say there is no sign of that crisis now is an understatement. Over two months in which China reduced its Treasury holdings by $56 billion, the yield on the 10-year Treasury bond tumbled to around 3% from 3.7%.

Since the end of June, the yield on the 10-year Treasury note has dropped even further, approaching 2.6%, its lowest level since the financial crisis was bottoming out in March 2009. Yields are falling as investors around the globe shift their focus to generating income at a time when optimism about an economic recovery is diminishing.

At the same time, China seems to have continued its efforts to diversify its massive foreign exchange reserves, which for now are held largely in dollars. China made a big purchase of Japanese bonds in May, and the flood of cash into low-yielding government bonds there has helped send the yen to a 15-year high against the dollar.

And even as China tries to hedge its massive holdings of dollars, funds from elsewhere continue to come into the United States. Foreigners bought a net $23 billion of long-term securities in June, with Japan adding $17 billion in Treasurys and Switzerland adding $16 billion.