Bloomberg News

China Boosts Treasuries Buying as Global U.S. Demand Rises

June 15, 2011

(Updates with quote from UBS strategist in last paragraph.)

June 15 (Bloomberg) -- Global demand for U.S. stocks, bonds and other financial assets rose in April from a month earlier, as China increased its holdings of Treasuries after five months of declines, the Treasury Department reported.

Net buying of long-term equities, notes and bonds totaled $30.6 billion during the month compared with net buying of $24 billion in March, according to statistics issued today in Washington. Including short-term securities such as stock swaps, foreigners purchased a net $68.2 billion, less than net buying of $127.1 billion the previous month.

The Treasury’s reporting on long-term securities is a gauge of confidence in U.S. economic policy, which has been dealing with unemployment at 9.1 percent and a fight over raising the federal debt ceiling. China remained the biggest foreign holder of U.S. Treasuries, after its holdings rose by $7.6 billion to $1.2 trillion.

“With the huge trade surplus China enjoys with the U.S., they can only delay purchases of Treasuries for so long,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said by e-mail after the report was released. “The dollars they accumulate in trade have to be invested in U.S. assets because if they sell the dollars in the market the yuan will appreciate and the comparative trade advantage they hold over us will go up in smoke.”

Rupkey said “there is simply no safer place to be right now than the USA.”

Economists in a Bloomberg News survey forecast long-term U.S. financial assets would show net purchases of $35 billion in April. Five economists participated in the survey and their estimates ranged from $18.5 billion to $36 billion.

Fed’s Bernanke

Last week, Federal Reserve Chairman Ben S. Bernanke said a “frustratingly slow” recovery warrants sustained monetary stimulus while predicting that growth will gain speed in the second half of the year. The Treasury Department has said in the meanwhile it will exhaust all borrowing options in August unless there is congressional action.

Overseas, pressure on European finance ministers to craft a rescue plan intensified after Standard & Poor’s this week reduced Greece’s credit rating.

Japan, the second-largest holder of U.S. financial assets, reduced its holdings by $1 billion to $906.9 billion in April. Hong Kong, counted separately from China, increased its holdings by $300 million to $122.4 billion in April.

Total Purchases

Total foreign purchases of Treasury notes and bonds were $23.3 billion in April compared with purchases of $26.8 billion in March. Foreign demand for U.S. agency debt registered net buying of $7.5 billion in April after buying of $9.5 billion in March.

Net foreign purchases of equities were $17.8 billion in April after net purchases of $14.7 billion in March. Investors sold a net $3.8 billion in U.S. corporate debt in April after buying $3.8 billion in March.

“Foreign investors have been active out the curve and purchasing securities during the period of time covered in this data, and I would expect to see a follow-through in subsequent months’ data,” Chris Ahrens, head interest-rate strategist in Greenwich, Connecticut at UBS AG, a primary dealer trading with the Federal Reserve, said by e-mail after the report was released. “The data is consistent with what we’ve observed in terms of flows.”

--Editors: Kevin Costelloe, Paul Badertscher

To contact the reporters on this story: Vincent Del Giudice in Washington at vdelgiudice@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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