China’s August sales of Treasuries may have been driven by the securities’ gains linked to U.S. economic weakness, European debt turmoil and speculation of more Federal Reserve bond buying, according to David Ader, at CRT Capital Group LLC.
“It appears China is playing off the Fed and financial turmoil,” said Ader, head of government bond strategy at Stamford, Connecticut-based CRT, in telephone interview. “When you have a portfolio like that you want to sell into potential rallies, and I suspect China is doing the same.”
China, the world’s second-largest economy and the largest foreign lender to the U.S., cut its position in U.S. government securities by $36.5 billion, or 3.1 percent, to $1.14 trillion, according to Treasury Department data released yesterday in Washington. At the same time, the data showed total foreign ownership increased 2 percent to a record $4.57 trillion as global investors sought a refuge from the financial market turmoil that followed the downgrade.
The central bank said Sept. 21 it would buy $400 billion of U.S. debt with maturities of six to 30 years through June while selling an equal amount of securities in its portfolio due in three years or less. The program is known as Operation Twist.
Treasuries returned 2.8 percent in August, while the global bond market gained 1.99 percent, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks fell 7 percent the same month, the biggest slump since May 2010, and the Standard & Poor’s GSCI Total Return Index of commodities lost 1.8 percent.
Since August, the U.S. Treasury Master Index has gained 0.79 percent through Oct. 18.
Foreign holdings of U.S. Treasuries have risen 3.1 percent this year through August, the smallest increase since 2006. International ownership of U.S. government debt rose 20 percent annually the prior two years, and at a compound rate of 17 percent since 2001, as far back as the data is available.
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