China's U.S. Treasuries Holdings Dip, Remain Near Year-High

(Bloomberg) -- China’s holdings of U.S. Treasuries fell in September, but stayed near the highest level in a year, as the world’s second-biggest economy rebuilt its currency reserves.

China’s holdings of U.S. bonds, notes and bills declined for the first time in eight months, dropping by $19.7 billion to $1.18 trillion, according to Treasury Department data released Wednesday in Washington. China remains the biggest foreign holder of U.S. Treasuries, ahead of Japan, which owned $1.1 trillion, down by $5.7 billion from August.

The dip in holdings came as China’s yuan lost ground against the U.S. dollar, after rallying about 7 percent in 2017. The yuan weakened around 0.8 percent against the dollar in September as the greenback rallied, reducing the need for China to buy U.S. debt as part of slowing the its currency’s appreciation. Coming months may see less China purchasing of Treasuries should the dollar continue to stabilize, said Carol Zhang, a Bank of America Corp. strategist.

“September was the bottoming of the dollar in recent months, and that could mean not as much demand from reserve managers in general,” Zhang said in an interview after the release of the data. “To the extent that the dollar stabilizes, there won’t be as much demand going forward.”

China and Japan account for more than a third of all foreign ownership of Treasuries, which gained by $53.7 billion to a record $6.32 trillion in September, the figures showed.

China’s foreign-exchange reserves rose for a ninth month to $3.11 trillion in October, according to a report released last week. The country’s capital outflows have eased amid tighter controls, helping steady the currency. The yuan has gained 5 percent against the greenback this year, rebounding from a loss of about 6.5 percent last year.

Belgium’s ownership of Treasuries, often seen as a proxy for Chinese accounts, rose to $104.8 billion in September from $96.9 billion a month earlier.

The Treasury report, which also contains data on international capital flows, showed a net inflow of long-term securities of $80.9 billion after $73.2 billion in August. It showed a total cross-border outflow, including short-term securities such as Treasury bills and stock swaps, of $51.3 billion following inflows of $130 billion the prior month.

To contact the reporters on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net, Katherine Greifeld in New York at kgreifeld@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor, Randall Woods

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