China ramps up US bond purchases

Updated: 2014-11-19 12:34

By Paul Welitzkin in New York(China Daily USA)

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China slightly reduced its holdings of US debt in September, but sharply increased purchases of US notes and bonds in the month, according to data from US Treasury Department released on Tuesday.

The Treasury International Capital report, which reflects securities bought and sold on a two-month lag, showed that China held about $1.266 trillion of US debt as of Sept 30, down from nearly $1.269.7 trillion in August. In September 2013, China's holdings were $1.293.8 trillion.

"China's holdings have been relatively flat this year," said Gennadiy Goldberg, US strategist at TD Securities USA in New York. "They have been in the $1.26 to $1.27 (trillion) range since late in 2013."

What did change for China was the amount of US Treasury notes and bonds the country purchased in September, a total of $24.7 billion, more than double the $11.8 billion in August.

"China will have to remain a large buyer since the US dollar has gotten stronger," Goldberg told China Daily in an interview. "Part of it is also related to their strategy to manage the appreciation of their currency."

Japan remained the second-biggest holder of US debt with $1.221.1 trillion in September, down from $1.230.1 trillion in August but up from $1.178.1 trillion from a year earlier. Japan's economy unexpectedly contracted for a second consecutive quarter, leaving the world's third-largest economy in recession.

The third-biggest holder of US debt is Belgium with $353.9 billion, down from $359.9 billion in August but up sharply from $172.5 billion last year.

"Belgium has been a large accumulator of Treasuries," Marc Chandler, senior vice-president and global head of markets strategy for Brown Brothers Harriman in New York, said in an e-mail to China Daily.

"There is speculation that it is really a clearinghouse based in Belgium that is behind these purchases," said Goldberg. Russia is the 12th largest holder of US debt with $117.7 billion, down slightly from $118.1 billion in August. In September 2013, Russia held $140.5 billion.

The Treasury International Capital Report is considered a measure of foreign demand for US financial assets and in particular, an important source of demand for US Treasuries or T-bills. Strong demand from foreign governments and overseas investors for US bonds is one of the reasons why interest rates on Treasuries is low. The yield on a 10-year Treasury note is about 2.3 percent.

"Central banks use Treasuries to stash huge amounts of funds and shield it from market interference," said Goldberg.

The US Treasury said the total of all net foreign acquisitions of long and short-term US securities and banking flows was a monthly net outflow of $55.6 billion. Of this, net foreign private outflows were $46.1 billion, and net foreign official outflows were $9.5 billion.

(China Daily USA 11/19/2014 page2)