China, the largest foreign U.S. creditor, boosted its holdings of U.S. government securities in April for the first time in three months as concern increased that Europe’s financial crisis was worsening.
Chinese holding rose 0.1 percent to $1.1455 trillion, U.S. Treasury Department data released yesterday show. Those of Japan, America’s second-largest lender, slipped 1 percent to $1.0661 trillion. Net foreign purchases of Treasuries increased $21 billion, or 0.4 percent, to a record $5.156 trillion in April, the data show.
“We’ve seen a global flight to quality and the Treasury market has enjoyed the lion’s share of the benefits as the premier safe haven,” said Millan Mulraine, an interest-rate strategist at Toronto-Dominion Banks’ TD Securities unit in New York. “There is still a lot of concern about where global growth and policy makers are headed, and as such, investors are plowing into government debt.”
Investors continued to seek a haven in U.S. Treasuries after Spain’s announcement that it will ask for as much as 100 billion euros ($126 billion) in aid for its banks has failed to quell global turmoil in financial markets. Elections in Greece on June 17 will set the stage for determining whether the country is prepared to stand by its international-bailout commitments.
Yields on benchmark 10-year Treasury notes dropped to a record low of 1.44 percent on June 1 as the Federal Reserve pledged to keep borrowing costs close to zero to sustain economic growth.
The data showed China held $1.144 trillion of Treasuries in March, a decrease from the $1.1699 trillion reported for the period on May 15. The Treasury is revising holdings 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 have declined 0.6 percent.
China’s holdings of short-term Treasury bills declined 5.1 percent in April to $3.7 billion from $3.9 billion the month before.
“China buying was more for maintenance purpose as they still have dollars to put to work,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “They are becoming less and less relevant in the market as their currency faces less upward pressure.”
China’s policy makers have advocated diversification of the nation’s foreign-exchange reserves away from U.S. assets after more than doubling its holdings of Treasuries since 2007 in the wake of the global financial crisis.
Treasuries have returned 1.8 percent this year, according to the Bank of America Merrill Lynch Indexes.
The Fed remains the top holder of U.S. debt with $1.66 trillion. The central bank said in September it would sell $400 billion of short-term debt in its holdings and buy an equal amount of longer-maturity Treasuries. Traders call the program Operation Twist after a similar effort in 1961 to contain borrowing costs for companies and consumers.
Net buying of long-term equities, notes and bonds totaled $25.6 billion during the month, compared with net purchases of $36 billion in March, the Treasury said in Washington. Economists surveyed by Bloomberg News projected net buying of $45 billion of long-term assets, according to the median estimate.