The United Arab Emirates (UAE) bought more US Treasuries than China in February, breaking with other top oil exporters in the Persian Gulf region that cut back on their exposure to one of the world’s safest assets.

OPEC’s third-biggest producer raised its stockpile by almost 50 per cent to US$50.6 billion at the end of February, an increase of nearly US$17 billion that made it the second-biggest buyer of the securities that month after the UK, according to the latest figures from the US Treasury Department. The monthly haul was the biggest ever for the UAE.

The reasons behind the rise weren’t clear and the UAE central bank didn’t immediately respond to a request for comment. But the UAE, whose capital Abu Dhabi is home to almost 6 per cent of the world’s oil reserves, may have built up enough of a buffer to commit the spare petrodollars toward the US$21 trillion Treasuries market.

The move took UAE holdings to levels last seen in 2019 before the global pandemic and the crash in oil prices put pressure on its finances. China bought US$9 billion of Treasuries in February to bring its total to US$1.1 trillion, the highest since mid-2019.

Although a recovery in oil has been a boon across the energy-rich region, the windfall may be even bigger for the UAE since it needs one of the lowest crude prices to balance its budget. Both Saudi Arabia and Kuwait were net sellers of Treasuries in February.

The official tally may not accurately reflect the true size of a country’s holdings if they are masked behind those of other nations.

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Similarly to its neighbors in the region, the UAE needs to have enough reserves to maintain confidence in its currency peg to the dollar. The central bank’s gross international reserves reached almost 389 billion dirhams (S$140.81 billion) in February, from 381.9 billion dirhams a month earlier.

The International Monetary Fund estimates the UAE central bank’s reserves will reach US$119 billion this year, on top of over US$1 trillion in assets managed by the country’s wealth funds.

The purchases came in the middle of the worst quarter for Treasuries since 1980, with the Bloomberg Barclays US Treasury Index posting a 1.8 per cent drop in February alone. The benchmark 10-year Treasury yield increased about 34 basis points during the month to 1.4 per cent and now stands at around 1.6 per cent.

BLOOMBERG