China Increased Treasury Holdings for Third Month in June as Demand Waned
Treasuries Rise on Federal Reserve’s Slow-Growth View
William Thomas Cain/Getty Images
Treasury checks are run through a printer at the U.S. Treasury printing facility July 18, 2011 in Philadelphia.
Treasury checks are run through a printer at the U.S. Treasury printing facility July 18, 2011 in Philadelphia. Photographer: William Thomas Cain/Getty Images
China boosted its holdings of U.S. government debt for a third straight month to $1.17 trillion in June, while other foreign investors were sellers of Treasuries for the first time since 2009.
Investors in the Asian nation raised their note and bond holdings by $1.655 billion to a record $1.16 trillion and added $1.57 billion of bills to $4.55 billion, according to the Treasury Department data released yesterday. Total holdings rose 0.5 percent in the month and the bill purchases were the first since January.
A surge in the nation’s trade surplus to $31.5 billion last month, the highest level in more than two years, is helping sustain expansion in an economy that’s averaged 10 percent growth for the past five years. Exports climbed 20.4 percent from a year earlier in July, topping the 17 percent median forecast in a Bloomberg survey of 25 economists. Imports jumped 22.9 percent.
“Given size and liquidity of the Treasury market versus alternatives, they have to keep buying,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “For all the angst over the U.S. budget position, Treasuries have actually been a better investment than most this year. The hedge funds who sold in June will have missed out.”
China’s Treasury purchases are likely to be larger than the June data indicate, as transactions conducted via third countries are attributed to that country. Annual benchmark surveys, part of the U.S. system to measure portfolio investment into and out of the United States, eventually capture these flows, Callow said.
Foreign investors sold $4.487 billion of U.S. notes and bonds in June, after the buying of $37.954 billion in May, the Treasury said. The last time foreign investors were net sellers was in January 2009, with net selling of $11.7 billion.
‘Flight to Quality’
U.S. Treasuries returned 6.53 percent this year, a Bank of America Merrill Lynch index shows, while the MSCI World Index of stocks fell 5.9 percent and the S&P GSCI index of 24 commodities rose 3.2 percent. Even as the U.S. lost its top credit ratings, demand for Treasuries strengthened as investors sought safety to protect their wealth against Europe’s debt crisis and economic uncertainties.
“China continues to accumulate dollars as we continue to import from them and they have to do something with them, so they buy Treasuries,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The addition of shorter-date paper represents some of the flight to quality.”
Vice President Joe Biden will visit China from Aug. 17 to 22 at the invitation of Chinese Vice President Xi Jinping, according to a statement posted to the Chinese foreign ministry’s website on Aug. 8.
‘Debt Bomb’
Global demand for U.S. stocks, bonds and other financial assets weakened in June from a month earlier as the White House and Congress wrangled over raising the debt limit. China’s Xinhua News Agency, in a commentary dated Aug. 2, warned the U.S. still faces a “debt bomb.”
Net buying of long-term equities, notes and bonds totaled $3.7 billion during the month, compared with net buying of $24.2 billion in May, the Treasury Department reported.
“In June, as the U.S. continued to display dysfunction in Washington ahead of an expiring debt ceiling coupled with the threat of a U.S. downgrade, foreigners were much less interested in putting their money in U.S. securities,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, via e-mail.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net Kyoungwha Kim in Singapore at kkim19@bloomberg.net;
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Sandy Hendry at shendry@bloomberg.net
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