China’s Holdings of U.S. Treasuries Decline for Third Month

China’s holdings of U.S. Treasuries declined for the third straight month, the longest stretch of reductions since 2011, a government report released today in Washington showed.

The country held $1.26 trillion in U.S. debt as of April, down $8.9 billion from the previous month, the Treasury Department said in a monthly report. China is the largest foreign holder of Treasuries, followed by Japan.

The decline may be related to China’s foreign-exchange reserve levels, said Aaron Kohli, an interest-rate strategist at BNP Paribas in New York. China’s accumulation of reserves will diminish after hitting a record in the first quarter, a Chinese government official said last week.

A slowdown “doesn’t give them much need to be buying Treasuries hand over fist,” Kohli said. “Treasuries don’t represent the kind of screaming value you would need to be buying them as an asset by itself.”

The last decline of China’s Treasury holdings extending more than three months was during the final five months of 2011, according to Treasury data compiled by Bloomberg.

Yuan forwards today dropped by the most in five weeks as China’s central bank reduced the reference rate after the U.S. dollar strengthened and after a report suggested capital inflows have slowed.

Yuan Rate

The People’s Bank of China cut its daily fixing 0.06 percent to 6.1537 per dollar, the weakest since June 6, following a 0.11 percent gain in the Bloomberg Dollar Spot Index on June 13. The central bank raised the reference rate by the most in 2014 last week after the country posted its largest monthly trade excess in five years.

A PBOC report today showed yuan positions at Chinese financial institutions accumulated from foreign-exchange purchases rose by the least since August.

China’s reserves accumulation will slow as the country adjusts to its current accounts becoming more balanced, Guan Tao, head of the balance of payments department at China’s State Administration of Foreign Exchange, said in an online webcast June 12.

China’s reserves, the world’s biggest, were a record $3.95 trillion at the end of the first quarter, official figures show. The holdings were boosted by China’s current-account surplus and dollar purchases that helped weaken the yuan during the period.

Today’s Treasury report, which also contains data on international capital flows, showed a net outflow of U.S. long-term securities of $24.2 billion after a net $4.1 billion inflow in March. It showed a total cross-border inflow, including short-term securities such as Treasury bills and stock swaps, of $136.8 billion.

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