Bloomberg News

Chinese Holdings of Treasuries Rise as Fed Purchases Near End

June 15, 2011

June 16 (Bloomberg) -- China, the largest foreign owner of U.S. government debt, added to its holdings for the first time in six months in April as economic data weakened and the Federal Reserve signaled no extension of its $600 billion purchase plan.

The Communist nation’s holdings of longer-term notes and bonds rose 0.8 percent to a record $1.149 trillion in April, surpassing the $1.145 trillion held in December, U.S. Treasury data released yesterday show. Holdings of short-term bills maturing in one year or less declined by 32 percent to $3.9 billion, the least since April 2004, the data show.

Chinese officials, as well as those in Germany and Brazil had been critical of the Fed’s asset purchase plan when it was first announced in November, said the proposal would be inflationary and could hurt the value of dollar-denominated assets. The Fed became the largest owner of Treasuries through what has become known as its policy of quantitative easing, in which bonds were bought to add cash into the economy and reduce the risk of deflation. The purchases end this month.

“One might draw a loose conclusion that they stepped aside at the onset of QE and during the period of time when the economy seemed to be gaining better footing and there were some inflationary concerns,” said Chris Ahrens, head interest-rate strategist at UBS AG in Stamford, Connecticut, one of the 20 primary dealers that trade with the Fed.

Global demand for U.S. stocks, bonds and other financial assets rose in April from a month earlier, led by longer- maturity securities, the Treasury Department reported. Net buying of long-term equities, notes and bonds totaled $30.6 billion compared with net buying of $24 billion in March.

‘Foreign Intermediaries’

Foreign holdings of Treasuries rose for a 24th month to $4.49 trillion. Japan, the second largest foreign owner, reduced its holdings by 0.9 percent to $906.9 billion in the month after suffering its largest earthquake on record and a tsunami, leading to meltdowns at a nuclear power plant.

Even with the increase, the data “underestimates what China’s buying,” said Scott Sherman, an interest-rate strategist at Credit Suisse Group AG in New York, a primary dealer. “China deals through foreign intermediaries” leading to initial tallies counting their purchases as belonging to other holders, such as the U.K.

Holdings of Treasuries in the U.K. rose 2.4 percent to $333 billion in April, and have increased 23 percent for the year, the data show.

The Treasury’s initial reports on international purchases are based on the location where the transaction occurs, while subsequent revisions are based on location of the beneficial owner.

--Editors: Dave Liedtka, Greg Storey

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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