THE "$688 Billion" EXIT: Why China Just Sold US Debt at a Record Loss

Ladies and gentlemen, archivist here. If you want to understand the timeline of the coming global conflict, you must stop looking at the movement of aircraft carriers in the Taiwan Strait. Military assets are deceptive. They can be deployed for training exercises. They can be used for signaling and they can

be recalled to port in a matter of days. They are the theater of geopolitics designed to be seen. If you want to know the intent of a superpower, if you want to know if they are truly preparing for an irreversible divorce, you must look at the movement of sovereign debt. Debt is the bedrock of the global order. It

is heavy. It is slow. It takes months, sometimes years, to offload significant positions without crashing the market. And when the second largest economy in the world begins to dump the debt of its primary rival at a speed that defies economic logic, they are not rebalancing

a portfolio. They are clearing the decks for war. We need to conduct a forensic deep dive into the data released by the US Treasury Department this week. The Treasury International Capital TIC report is one of the most boring, dense, and critical documents in finance. Most

journalists skim the headline number. We going to read the footnotes. The data confirms a trend that Wall Street has been trying to ignore, dismiss, or spin for the last 12 months. China's official holdings of US Treasury bonds have collapsed to $688 billion as of October

2025. To the uninitiated, $688 billion sounds like a lot of money. It is. But in the context of the US China financial relationship, this number represents a catastrophic collapse. This is the lowest level of Chinese ownership since

May 2009. We have erased 16 years of financial integration. To put this in perspective, in 2013, at the peak of Chimea, the symbiotic economic relationship between China and America, Beijing held 1.32 trillion in US debt.

They effectively funded the US deficit. They bought the bonds that allowed Americans to buy cheap Chinese goods. It was a closed loop of capital flow that kept interest rates low in global trade humming. That loop is broken. China has liquidated nearly 48% of their position from the peak. They have sold off over

$600 billion worth of American IUs. But it isn't just the total amount that is alarming. It is the market context of the recent sales. Throughout late 2024 and throughout 2025, the US bond market was in a historic drawdown. Interest rates were volatile and bond prices

which move inversely to yields were depressed. Anyone selling US treasuries during this specific window was selling at a realized loss. In the world of asset management, you do not sell a depreciated asset for a loss unless you're facing a liquidity crisis. You need cash immediately to pay bills or

you believe the asset is about to become toxic. We know China is not facing a liquidity crisis. Despite their domestic real estate struggles, they continue to run a massive trade surplus with the world. They are swimming in cash. Therefore, the only logical conclusion, the only one that fits the data is that

the Chinese Communist Party has made a strategic decision that the US Treasury bond is no longer a sto store of value. They view it as a strategic liability. This is the sanction evasion signal. We must look at this through the lens of February 2022 when Russia invaded

Ukraine. The United States and the European Union executed a financial maneuver that shocked Beijing to its core. Overnight, they froze $300 billion dollars of the Russian central bank's foreign exchange reserves. These were funds sitting in Western accounts in New York, London, and Brussels. Russia

thought this money was safe. It wasn't. It was seized or immobilized with a few keystrokes. Beijing watched this. They analyzed it, and they realized a terrifying truth. If we make a move on Taiwan or if the South China Sea conflict goes hot, our US Treasury holdings are not an asset. They are a

hostage. The $688 billion they still hold is effectively a donation to the US Department of Justice waiting to happen. The moment sanctions are applied, that money goes to zero. So, they are getting out. They're liquidating the position with extreme prejudice. They are willing

to take a 10% or 20% haircut on the face value of the bonds today rather than risk a 100% loss tomorrow. This is a strategic liquidation. It is the financial equivalent of a burn notice. They are dismantling the great wall of debt that stabilized the US economy for

20 years and they are doing it in a way that suggests urgency. Usually the central bank tries to hide its selling to avoid spooking the market. They sell slowly in small chunks. But the velocity of the recent drop, shedding nearly 12 billion in October alone suggests Beijing is less concerned with Maroon's

market stability and more concerned with capital capital flight. They want the money out of the US jurisdiction and they want it out now. This has profound implications for the US economy. For two decades, the US government could run massive deficits because there was always a price insensitive buyer in the

east. China would buy the debt regardless of the yield because they needed to recycle their trade surplus. That buyer is gone. China has turned from the biggest buyer into the biggest seller. This creates a massive supply demand imbalance in the US bond market. Who is going to buy the debt that China

is dumping? Who is going to fund the US deficit now? As we will see in the next section, the burden is falling on the allies, on the allies, specifically the UK and Europe, who are being forced to cannibalize their own economies to keep the US financial system afloat. When the

second largest holder of your sovereign debt decides to dump hundreds of billions of dollars onto the open market, basic economics dictates that the price should crash. When supply floods the market and demand vanishes, prices fall. In the bond world, when prices fall, interest rates, yields

skyrocket. If market forces were allowed to work, the exit of China should have pushed US 10-year Treasury yields significantly higher than where they are. This would be catastrophic for the US economy. It would explode mortgage rates. It would bankrupt regional banks. It would make the interest payments on the national debt unsustainable. But

curiously, that hasn't happened yet. Rates have risen, yes, but the market hasn't collapsed. Why? Because as China steps out, the allies are being forced to step in. We need to look closely at the WHO in the TIC data. While the line item for China is plummeting towards

$600 billion, other line items are spiking to historically abnormal levels. Specifically, the United Kingdom and Belgium. The United Kingdom's holdings of US debt have surged to record highs, reaching over $750 billion in late 2025.

This puts the UK neck-and-neck with China as the second largest foreign creditor to the United States after Japan. Think about that for a second. The UK economy is roughly 16th the size of China's economy. The UK does not run a massive trade surplus. In fact, Britain runs a trade deficit. So, where

is Britain getting the money to buy nearly $750 billion of US debt? They aren't buying it with excess profits like China did in the 2000s. They are likely buying it with borrowed money or through financial engineering in the city of London. The UK is effectively leveraging its own balance sheet to act

as a shock absorber for the US Treasury market. Then there is Belgium. In the latest data, Belgium's holdings are roughly 320 to$370 billion. Is the Belgian government suddenly flushed with cash? No. Belgium is home to Eurolear.

Euroclear is one of the world's largest international central securities deposiitories, ICSD. It is the plumbing of the global financial system. When you see Belgium buying US debt in the TIC report, it is rarely the Belgian government. It is usually a proxy. It is

often other central banks, sovereign wealth funds or custodial accounts trying to mask their activity. It creates a layer of anonymity. However, the surge in Belgium and UK holdings occurring exactly as China cells suggests a coordinated effort by the G7 nations. This is the bag holder

alliance. This is not a free market decision. Why would a rational investor in London or Brussels aggressively buy US treasuries right now? The US is running a $2 trillion deficit. Inflation is sticky. The currency is being weaponized. Buying US debt right now is a risky trade. The fact that the allies

are loading up on it suggests geopolitical arm twisting. Washington is effectively telling its partners, "China is dumping. If you don't step in and absorb this supply, the US bond market breaks. If the US bond market breaks, the global financial system breaks and we can't protect you." It is a form of

financial conscription. The West is cannibalizing its own balance sheets to absorb the supply coming out of Beijing. But this strategy has a fatal flaw. Capacity. China had a seemingly infinite capacity to buy debt because they were the smart factory of the world. They

earned real dollars by selling real goods. The UK and Europe do not have that capacity. They are already struggling with their own debt burdens, slow growth, and energy transitions. By forcing them to buy US treasuries, Washington is draining the liquidity from its own allies. It is weakening the

periphery to save the core. This creates a fragile system. If the UK economy stumbles, as we saw during the LDI crisis in 2022, they might be forced to sell those treasuries to raise cash for themselves. If that happens, the bid of last resort disappears. China knows

this. China is playing a game of attrition. They are bleeding the West dry. Every billion dollars of bonds they dump forces the Western financial system to find a billion dollars of liquidity to buy it. It draws capital away from productive investments like factories or infrastructure and into the black hole

of refinancing US debt. It is a weaponized sell-off designed to exhaust the financial capacity of the G7 before the kinetic conflict even begins. Furthermore, this shift changes the nature of the US bond market. It used to be a market dominated by economic buyers. China, Saudi Arabia, who bought

for profit and trade. Now it is a market dominated by political buyers, UK, Belgium, Japan who buy for diplomatic survival. Political buyers are fickle. They buy until their own voters revolt or until their own currency crashes. We are watching the transition from a global reserve asset to a NATO reserve

asset. The market is shrinking. The pool of buyers is getting smaller while the issuance of debt is getting larger. And while the West is busy shuffling paper liabilities among themselves, China is taking the cash and running to the one place the US Treasury cannot touch, the physical world. When China sells a US

Treasury bond, the transaction settles in US dollars. The People's Bank of China, PBOC, receives a digital credit in a custodial account. But here is the problem. China doesn't want dollars. As we established, dollars are a liability. They are traceable, sanctionable, and

subject to inflation. China is exiting the dollar to escape American leverage. So, what are they doing with the proceeds of this massive 700 billion exit? They aren't putting it under a mattress. They aren't buying euros, which are just US vessels, and they aren't buying Japanese yen. They are

engaging in the most aggressive commodity accumulation drive in modern history. They are converting paper claims into physical reality. We need to track the cargo ships entering the ports ofQing Dao, Shanghai, and Tenzin to see where the money is going. While Western analysts stare at bond yields and stock

tickers, Chinese state-owned enterprises are swallowing record amounts of raw materials. This is not a commercial inventory build. This is a strategic hoarding campaign. One, the golden pivot. As we discussed in previous briefings, the shadow audit, the PBOC

has been a relentless buyer of gold. Officially, they have bought gold for 18 plus consecutive months. Unofficially, the SGE withdrawals suggest the buying is much larger. They are using the dollars from the bond sales to buy metal on the London and Swiss markets and shipping it east. Gold is the ultimate

anti-doll. It has no counterparty risk. It cannot be frozen by the Swift system. By swapping US debt for gold, China is moving from credit based reserves to collateral-based reserves. Two, the energy lifeline crude oil, China imports

70% of its oil. This is its strategic Achilles heel. In a war, the US Navy could blockade the Strait of Mala and starve the Chinese economy of energy. To counter this, China has been buying record amounts of oil, often from sanctioned nations like Iran and Russia.

They are paying in UN petrol UN bypassing the dollar entirely but crucially they are filling their strategic petroleum reserve SPR to capacity. Recent data indicates China's crude stockpiles are nearing 1.5 billion barrels commercial plus strategic

capacity. Satellite imagery analysis shows the construction of massive new storage farms and underground caverns. They are building a buffer that would allow them to survive a naval blockade for months, perhaps years. The money for this oil is coming from the liquidation of US assets. Three, the Metal Mountain,

copper and strategic minerals. This is the most telling signal. China's property sector, historically the biggest consumer of copper for wiring and plumbing, is in a depression. Real estate starts are down. And yet, China's imports of copper ore and concentrate

remain near all-time highs with roughly 28 million tons imported in 2024. This defies standard economic logic. If you aren't building apartments, why do you need so much copper? Because you're shifting to a war economy. You need copper for the green energy grid to

reduce reliance on imported oil. You need copper for munitions. You need copper for drones and electric vehicles. China is cornering the market on the physical inputs of the 21st century military-industrial complex. They are also hoarding cobalt, lithium, and rare earths. While the US financializes its

economy, China is materializing its savings. Four, the food security fortress. China creates 20% of the world's GDP but has only 7% of the world's arable land. This is another vulnerability. In response, China has accumulated massive

stockpiles of grain. According to the US Department of Agriculture, USDA, China holds approximately 60% to 70% of the world's global reserves of corn and wheat. They have enough grain stockpiled to feed their population for over a year without a single import. They are

trading yield interest on bonds for calories survival. This is the fundamental shift in mindset. A nation that plans to remain at peace keeps its wealth in efficient interestbearing financial instruments like US treasuries. It chases the highest return on investment ROI. A nation that is

preparing for conflict converts its wealth into inefficient physical stockpiles. Holding 500 million tons of copper pays no interest. In fact, it costs money to store. It has a negative yield, but it has a massive return on survival. China is willingly accepting a lower financial return today to ensure

it cannot be strangled tomorrow. This explains the loss they are taking on the bonds. Western economists mock China. Haha. They sold at the bottom. They realized a loss of billions. This is short-term thinking. Beijing doesn't care about a marktomarket loss in fiat

currency terms. They care about resource security. If they sell a bond at an 80% loss, but use the proceeds to buy oil that they will desperately need if the straight of Malaa is closed, that is a winning trade. They are trading fake wealth that can be frozen or inflated away for real wealth that can be burned

in an engine or fired from a barrel. The liquidation of US treasuries is the funding mechanism for this stockpile. They are using the proceeds from the old system to build the bunker for the new system. We have analyzed the flow. The data is clear. The trend is undeniable. China is selling. The allies are

absorbing the blow with borrowed money. The proceeds are being funneled into hard assets that can survive a world war. The conclusion is simple yet terrifying for the average investor. The US Treasury bond has become a battlefield. For 40 years, the 60/40 portfolio, 60% stocks, 40% bonds, was

the gold standard of investing. Bonds were the safe haven. They were the ballast that kept the ship steady. That era is over. The US Treasury bond is no longer a risk-free asset. It is a political football in a global economic war. It is an asset class that relies on

the kindness of strangers. Strangers who are increasingly becoming enemies. If China, the ultimate insider of the global manufacturing world, is getting out, you need to ask yourself a very serious question. Why are you staying in? So, how do you position yourself for a world where the biggest buyer leaves

the market? You follow the archivist's protocol. Protocol. Rule one, shorten your duration. If you hold bonds, you must understand duration risk. Duration is a measure of how sensitive a bond's price is to interest rates. Long-term

bonds, 20-year, 30-year treasuries, have high duration. If interest rates rise by 1%, the price of a 30-year bond can crash by 20%. As China exits, the structural pressure on long-term rates is upward. Even if the Fed cuts short-term rates, the long end of the

curve, which is determined by supply and demand, not the Fed, is vulnerable to a buyer strike. If China sells and the UK taps out, yields must rise to attract new buyers. Rising yields mean crashing prices for existing bond holders. Therefore, do not hold long-term US

government bonds, ETFs like TLT. These are the assets most vulnerable to the Chinese selloff. If you want safety and yield, keep your cash in short-term T bills, 1 month to six month. Short-term bills have almost zero duration risk. They are less sensitive to the geopolitical dumping. They act as cash

equivalents. Be like China. Get liquid, get short-term. Don't lock your money up for 30 years with a government that is fighting an economic war. Protocol rule two, follow the smart money commodities. China is selling paper to buy stuff. You

should consider doing the same. Your portfolio needs exposure to energy, metals, and real assets. This is not just about profit. It is about inflation protection. Think about the endgame here. If China dumps $688 billion and the allies eventually stop buying, who

buys the debt? The Federal Reserve. The Fed will have to step in as the buyer of last resort, yield curve control. They will have to print trillions of dollars to monetize the debt. When they print trillions, the value of the dollar falls and the price of stuff goes up. This is

the inflationary loop. China knows this. That's why they are buying the stuff. Now, you should own the producers of these assets. If China is hoarding copper, you want to own the miners that produce copper companies like Freeport McMoran or Southern Copper. If China is hoarding oil, you want to own the energy

producers like Exxon or Chevron. If China is hoarding gold, you want to own the metal. These assets act as a hedge against the debasement of the currency. You want to own the stuff, not the currency that buys the stuff. Protocol rule three, watch the allies. You need a

warning signal. You need to know when the bag holder alliance is breaking. Monitor the currencies of the key US allies, specifically the British pound, GBP, and the Japanese yen, JPY. These countries are straining their own resources to support the dollar bond market. Japan, in particular, is the

largest holder of US debt. But Japan is fighting a currency crisis. The yen has been volatile. If Japan has to intervene to save the yen, they will have to sell US treasuries to get the cash to buy their own currency. If Japan joins China in selling, it is game over for low rates. Watch the USD JPY exchange rate.

If the yen crashes towards 160 or 170 or if Japanese bond yields spike, it means the bag holder alliance is fracturing. That is the moment the US Federal Reserve will be forced to intervene. That is the moment the pivot happens. Not because inflation is beaten, but

because the Treasury market is broken. The $688 billion figure is not just a statistic in a government report. It is a countdown clock. China is methodically, deliberately removing itself from the US financial system. They are clearing the decks. They are

willing to take a loss today to ensure survival tomorrow. Do not interpret the current stability of the market as safety. It is an artificial stability propped up by political pressure and borrowed money. When that prop gives way, the adjustment will be violent. Get out of long-term debt. Get into hard

assets. Watch the flows. The divorce is finalized. We are just waiting for the house to be sold. This is archivist. The protocol is active.