China, the largest foreign U.S. creditor, increased its holdings of U.S. government securities in January for the first time in six months as European leaders struggled to contain the region’s sovereign-debt crisis.
Holdings rose by 0.7 percent to $1.16 trillion, the first growth in China’s stake since July, Treasury data released yesterday show. The report also showed that net foreign purchases of Treasuries (HOLDTOT) totaled almost $83 billion in January, compared with net selling of $14.9 billion the month before.
Demand for Treasury debt was supported by concern whether Greece would be able to muster political support for austerity measures needed in order to obtain access to bailout funds. The decline in China’s holdings began in August as Standard & Poor’s lowered the U.S. credit rating to AA+ following a dispute between Republicans in Congress and President Barack Obama about the terms under which the U.S. would raise its borrowing limit.
“We can attribute” the rise in January to Europe, said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one of 21 primary dealers that trade Treasuries directly with the Federal Reserve. “That was during the flight to quality move. That was early on in the year when there was still denial that Europe was getting better.”
China reduced its holdings of 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.
The pace of reserve accumulation will “first and foremost” impact Chinese demand for U.S. government debt, Goncalves said.
China’s currency reserves declined 2.8 percent in November and December to $3.18 trillion, according to China’s National Bureau of Statistics.
Chinese policy makers have advocated diversification of the nation’s foreign-exchange reserves away from U.S. assets after more than doubling its holdings of Treasuries since 2007 in the wake of the global financial crisis. Yields (USGG10YR) on benchmark 10-year Treasury notes dropped to a record low of 1.67 percent in September as investors sought a haven from Europe’s debt crisis and the Federal Reserve pledged to keep borrowing costs close to zero to sustain economic growth.
Japan maintained its place as America’s second-largest lender, adding 2 percent to its Treasury position, which climbed to $1.08 trillion. Hong Kong’s stake rose 7.1 percent to $130.3 billion, while the United Kingdom, which is often seen as a proxy for Chinese demand, rose $29.9 billion, or 27 percent, to $142.3 billion.
The Fed remains the top holder of U.S. debt with $1.66 trillion on its balance sheet.
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