You’ve likely come across headlines touting China’s dwindling holdings of US Treasurys. With numbers showcasing a 40% dip, it’s easy to imagine the world’s second-largest economy veering away from Uncle Sam’s debt. But hold onto your calculators – there’s more to this story than meets the eye.

Let’s wind back the clock. In 2013, China’s vault brimmed with $1.3 trillion of long-term US Treasurys. Fast forward to August, and that treasure chest had shrunk to $793.5 billion. Now, this shrinkage wasn’t just a result of Beijing pulling back; rising bond yields also played their part, pushing bond prices down and slicing off some value from China’s holdings.

However, here’s where it gets interesting. If you put on yuan-tinted glasses, this decline starts to look a tad less dramatic. You see, since 2013, the yuan has depreciated by around 20% against the US dollar. And when you convert the decline in US Treasury holdings to the yuan, you’re staring at a 27% fall, not 40% as commonly reported.

Now, some might speculate that China’s pivot away from Treasurys is a geopolitical chess move. Still, Joseph Kalish, a global macro strategist, offers another perspective. Instead of just stashing its money under the Treasury mattress, China’s been eyeing another lucrative opportunity – agency mortgage-backed securities. These babies are backed by US government agencies and yield slightly more. In terms of numbers? While China’s been cutting back on US Treasurys by around $1.8 billion every month, it’s been scooping up these securities at a rate of $4.6 billion monthly.

But, wait – there’s more. There are whispers in the financial alleys suggesting China’s US bonds aren’t all homebound. Some might be lounging in custody accounts over in Belgium and Luxembourg. According to Kalish, a ballpark estimate is that around $120 billion of those bonds could secretly bear China’s name.

Bringing all the threads together – the increased appetite for agency mortgage-backed securities, the drop in US Treasury holdings, and the overseas held bonds – we see China’s US bonds stash reduced by 21% from its peak in 2013. Convert that to yuan, and you’re looking at a mere 5% dip since that year.

So, while it might appear China is closing its Treasury account, the financial dynamics paint a more nuanced picture. As Kalish aptly puts it, “Although China’s holdings of US debt are down, after some adjustments, it’s a lot less than the headline implies.” Always pays to dive a little deeper, doesn’t it?