China, the largest foreign U.S. creditor, increased its holdings of U.S. government securities in February for a second month as the country’s foreign-currency reserves resumed rising.
Holdings rose by 1.1 percent to $1.18 trillion in China’s first months of consecutive gains in Treasury debt since July, U.S. Treasury Department data released yesterday show. Net foreign purchases of Treasuries rose $41.2 billion, or 0.8 percent, to a record $5.1 trillion, the data show.
China’s currency reserves rose 3.9 percent in the first three months of 2012, reversing the first quarterly decline since 1998, according to China’s National Bureau of Statistics. China doubled the trading band of the yuan versus the dollar on April 14, a move that Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, said signals official confidence in the strength of the economy’s expansion.
“If their reserves continue to grow we should see a channel into Treasuries,” said Shyam Rajan, an interest-rates strategist at Bank of America Merrill Lynch in New York, one of the 21 primary dealers that trade with the Federal Reserve. “Foreign demand should continue to be strong given the indications we have had in the first quarter.”
The data showed China held $1.1662 trillion of Treasuries in January, an increase from the $1.1595 trillion reported for the period on March 15. The Treasury is now 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.
China increased its holdings of longer-term notes and bonds by $11.9 billion, or 1 percent, to $1.175 trillion. Its stake in short-term bills rose by $800 million to $3.8 billion, Treasury data show.
The rise in holdings comes after China reduced its position in U.S. government debt in 2011 for the first time since the Treasury started releasing the data in 2001, as yields fell to record lows. The world’s second-largest economy held $1.15 trillion Treasuries as of Dec. 31, down from $1.16 trillion in December 2010 and from a peak of $1.31 trillion in July 2011.
Japan maintained its place as America’s second-largest lender, adding 1.2 percent to its Treasury position, which climbed to $1.096 trillion. Hong Kong’s stake rose 4.6 percent to $140.5 billion, while the U.K., which is often seen as a proxy for Chinese demand, declined $11.1 billion, or 9.7 percent, to $103 billion.
The Fed remains the top holder of U.S. debt with $1.677 trillion on its balance sheet.
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