China remained the largest foreign U.S. creditor, adding to its holdings in March as the Treasury 10-year note yield reached the highest level since October.
China’s holdings rose by 1.3 percent to $1.17 trillion, U.S. Treasury Department data released yesterday show. Those of Japan, America’s second-largest lender, slipped 0.2 percent to $1.08 trillion. Net foreign purchases of Treasuries increased $17.8 billion, or 0.4 percent, to a record $5.12 trillion, the data show.
The 10-year Treasury yield touched 2.40 percent on March 20, after ending 2011 at 1.88 percent, as investors speculated gains in the U.S. labor market were a sign of sustainable economic growth. China’s currency reserves rose 3.9 percent during the three months ended March 31, reversing the first quarterly decline since 1998, according to the People’s Bank of China.
“The price level made more sense at that point,” said Larry Dyer, a U.S. interest-rate strategist at HSBC Holdings Plc in New York, one of 21 primary dealers that trade with the Federal Reserve. “All investors are looking for yield but also a little bit worried about the rate levels. It may be consistent with buying dips. Everyone who’s called for an end of Chinese purchases has found themselves on the wrong side of the facts.”
The data showed China held $1.1552 trillion of Treasuries in February, a decrease from the $1.1789 trillion reported for the period on April 16. The Treasury is now revising holdings data on a monthly basis rather than annually based on the nationality of the beneficial holder of the debt, while the initial data will still count the location of the purchase.
China increased its holdings of longer-term notes and bonds by $14.6 billion, or 1.3 percent, to $1.166 trillion. Its stake in short-term bills rose by $100 million to $3.9 billion, Treasury data show.
China’s holdings of U.S. government securities rose 1.6 percent in the first three months of 2012, reversing a 9.3 percent decline in the final three months of the previous year. 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.
For the first three months of 2012 Japan increased its holdings of U.S. government debt by 2.4 percent, its slowest pace of accumulation since the period from April through June 2011 following last year’s earthquake and tsunami.
Hong Kong’s Treasury holdings dipped $3 billion in March, or 2.1 percent, to $138.8 billion, while the U.K., which is often seen as a proxy for Chinese demand, declined $4.1 billion, or 3.5 percent, to $112 billion.
The Fed remains the top holder of U.S. debt with $1.665 trillion on its balance sheet.
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