China’s holdings of Treasuries fell 0.1 percent in March to $1.25 trillion, while Japan reduced its stake by 0.05 percent to $1.1 trillion, according to data released yesterday. China held 11 percent of the U.S. debt, compared with 9.7 percent by Japan. China’s stake reached a record $1.31 trillion in July 2011.
Demand for the U.S. debt from overseas investors slowed in March as U.S. economy showed signs of improvement and as speculation increased that Japan would expand its purchases of its own government securities. The Treasury 10-year note reached 2.08 percent on March 11, the highest this year. Yields declined later in the month on concern financial turmoil in Cyprus would renew the euro region’s sovereign debt crisis.
“China’s showed continued faith in the U.S. over the long run, otherwise you wouldn’t be adding $100 billion over the last few months,” said Aaron Kohli, an interest-rate strategist at BNP Paribas SA in New York, one of 21 primary dealers that trade securities with the Federal Reserve.
Foreign currency reserves held by China have risen 4.8 percent since September to $3.44 trillion, according to the People’s Bank of China. The nation’s Treasury holdings increased $96.9 billion in that period.
Revisions to the data showed China held $1.2519 trillion of Treasuries in February, more than the $1.2229 trillion first reported for the period on April 15. The Treasury is revising the data on a monthly basis rather than annually based on the nationality of the beneficial holder of the debt, while the initial data will still count the location of the purchase. For the year, China’s holdings grew $30.1 billion, or 2.5 percent.
China also added $5.7 billion of agency securities, the most since September, and $1 billion of corporate bonds in March, Treasury data show.
“The fact that we’re seeing a reach for yield within the sphere of U.S. debt is an indication that there’s a perception of a better risk profile for dollar-based assets than, say, Europe,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.
The benchmark 10-year note yield fell three basis points or 0.03 percentage point, to 1.85 percent in March. The yield fell four basis points to 1.94 percent yesterday in New York.
Holdings of Treasuries outside the U.S. rose in February by $39.6 billion, or 0.7 percent, to $5.758 trillion, the 15th consecutive monthly increase, the data show. Foreign investors have boosted their holdings 3.3 percent in the first three months of 2013 after climbing 11.3 percent in 2012 and 12.8 percent in 2011.
The U.S. marketable borrowing reached $11.4 trillion in March, and was up 11.2 percent for all of 2012, Treasury data show.
Foreign investors owned 50.5 percent of the marketable debt, the data, known as Treasury International Capital, show. Of the $5.758 trillion Treasuries held outside of the U.S., 71.2 percent, or $4.099 trillion, are owned by official institutions including central banks, finance ministries and other fiscal agents, Treasury data show.
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