Why China just told its banks to dump US Treasury bonds

Bond yields in the United States have risen sharply since just five years ago. Lenders and bond investors have paper losses of nearly 20% on its US Treasury portfolios since that time.

This poses serious challenges for banks, with large US Treasury holdings. They need their reserves to hold value over time, to capitalize the institution, and to collateralize new loans.

China's banking regulators have instructed their largest banks to cease new purchases of US government debt, and to strongly consider selling existing holdings.

The Chinese government itself has slashed its holdings of US Treasury bonds, which are at the lowest level in eighteen years.