China boosts holdings of US Treasuries by most in six months

A clerk counts Chinese yuan and US dollar banknotes at a branch of Bank of China in Taiyuan, Shanxi province, China, January 4, 2016. — Reuters pic
A clerk counts Chinese yuan and US dollar banknotes at a branch of Bank of China in Taiyuan, Shanxi province, China, January 4, 2016. — Reuters pic

BEIJING, April 17 — China’s holdings of Treasuries rose by the most in six months, underscoring the attractiveness of US assets even amid trade tensions between the world’s two largest economies.

China’s ownership of US bonds, bills and notes increased by US$8.5 billion (RM33 billion) to US$1.18 trillion in February, according to data released by the US Treasury Department yesterday.

China remained the largest foreign creditor to the US, followed by Japan whose holdings dropped to US$1.06 trillion, from US$1.07 trillion in January.

Speculation is growing about whether China could use its vast Treasury holdings as a bargaining chip in a trade dispute with the US.

While Chinese ambassador to the US Cui Tiankai didn’t rule out the possibility of the Asian nation scaling back Treasury purchases in response to tariffs proposed by the Trump administration in March, some observers have said a wide-scale selloff is unlikely given that China has few alternatives to invest in.

Still, China is evaluating the impact of a gradual yuan depreciation as the country’s leaders mull their options in the trade spat with the US, according to people familiar with the matter.

The world’s two largest economies are threatening to impose tariffs on tens of billions of dollars of goods, fueling worries of a trade war that could roil financial markets.

President Donald Trump weighed into the currency-market debate yesterday, accusing China and Russia of devaluing their currencies. His comments on Twitter contradicted the findings of his Treasury Department, which said in its semi-annual foreign-currency report on Friday that no major trading partners are currency manipulators.

US debt slumped in February, driving benchmark 10-year note yields to a four-year high of 2.95 per cent. Foreign demand for Treasuries has become a hot topic for bond traders, with the Federal Reserve projecting additional rate increases while the nation’s budget deficit is expected to widen.

China’s stockpile of foreign-exchange dipped in February, marking the first decline in more than a year amid volatility in the global financial markets. The yuan has gained almost 10 per cent over the past year as stricter capital controls have kept money from flowing out.

The Treasury data released yesterday also reflected some of the commotion in the financial markets in February. Net foreign sales of US equities totalled US$1.2 billion in February, the first outflows since August and compared with US$34.5 billion in purchases in January. — Bloomberg

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