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China sells most US Treasuries in nearly two and a half years

[SHANGHAI] China sold the most US Treasuries in almost two and a half years in March amid uncertainty about a trade deal between Beijing and Washington, data from the US Treasury Department released on Wednesday showed.

Since last week after a dismal 10-year Treasury auction, there has been renewed speculation whether China may sell its US debt in retaliation for increased tariffs on US$200 billion of its exports to the United States.

The latest data on China's US bond holding were collected before a sudden breakdown in trade talks between the world's two biggest economic powers one and a half weeks ago and prior to the US tariff hike on Chinese goods, which went into effect on Friday.

China sold US$20.45 billion in Treasuries in March, the most since October 2016, following US$1.08 billion in purchases the month before.

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China's stake in Treasuries fell for the first time in four months to US$1.121 trillion in March, which was the lowest since May 2017 when it was US$1.102 trillion. It was US$1.131 trillion in February, the data showed.

"The decline this month brings China essentially flat to where they were in February, erasing the increases from December through February," Jefferies LLC's senior money market economist Tom Simons wrote in a research note.

Despite the drop in Treasuries holdings, the world's second-largest economy remained the largest US creditor.

On the other hand, Japan raised its Treasuries holdings to US$1.078 trillion, the highest since November 2017, from US$1.072 trillion in February.

However, another set of Treasury data showed Japan sold US$11.07 billion in US government debt in March, the most for US's second-largest foreign creditor, since February 2018.

Meanwhile, foreigners resumed sales of Treasuries in March as US 10-year yields fell to 15-month lows after the Federal Reserve signalled it would not raise interest rates in 2019, according to the latest Treasury data.

They sold US$12.53 billion in US government debt in March after buying US$19.91 billion the month before.

"Private investors have been big buyers of Treasuries since the beginning of the second half of 2018, but foreign official institutions have been inconsistent," Mr Simons said.

Official overseas selling of Treasuries coincided with a dollar rally in March spurred by safe-haven bids for the greenback amid worries about the global economy, trade tension and uncertainty around Brexit.

Central banks of export-oriented countries often sell their Treasury holdings to defend their currencies from a sharp appreciation of the greenback.

Overseas accounts also sold stocks for 11 straight months, reducing their equity stakes by US$23.64 billion in March.

On the other hand, they bought US$4.74 billion in agency securities and US$1.11 billion of corporate bonds.

OUTFLOW PERSISTS

The latest data showed a net outflow from the United States totaling US$8.1 billion in March, slower than the revised US$21.5 billion in February.

Foreign central banks and other government entities accelerated their reduction of US assets, selling US$21.7 billion in March versus a revised US$10.1 billion the month before.

The official foreign sales in March were offset by net purchases by private overseas investors which acquired US$13.6 billion in US assets after a revised US$11.4 billion in sales in February.

REUTERS