China's Treasury Holdings Rose in August to Highest in Year

(Bloomberg) -- China’s holdings of U.S. Treasuries rose in August to the highest in more than a year as the world’s second-biggest economy saw a strengthening of its currency.

China’s holdings of U.S. bonds, notes and bills advanced for the seventh straight month to $1.2 trillion, an increase of $34.5 billion from a month earlier, according to Treasury Department data released Tuesday in Washington. That’s the highest level since July 2016.

China remains the biggest foreign holder of U.S. Treasuries, ahead of Japan, which owned $1.1 trillion, down by $11.4 billion from July. The two countries account for more than a third of all foreign ownership of Treasuries, which gained by $19.4 billion to $6.27 trillion in August, the figures showed.

China’s foreign-exchange reserves increased for an eighth month to $3.11 trillion in September, 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 as much as 8 percent against the greenback this year, rebounding from a loss of about 6.5 percent last year.

The yuan may have rallied even higher had China not stepped up the pace of their Treasury purchases, said Thomas Simons, senior economist at Jefferies LLC in New York. China tends to buy Treasuries in long-term trends, according to Simons, and August marked the seventh straight month in which China bought against yuan strength.

“The reason why they’re on this program is to measure their currency appreciation, so they’re buying dollars to hold it back a little bit,” Simons said. “It shows they’re still fighting against market forces.”

Belgium’s ownership of Treasuries, often seen as a home to China’s custodial accounts, fell to $96.9 billion in August from $99.4 billion a month earlier.

The Treasury report, which also contains data on international capital flows, showed a net inflow of long-term securities of $67.2 billion after $1.2 billion in July. It showed a total cross-border inflow, including short-term securities such as Treasury bills and stock swaps, of $125 billion following outflows of $7.3 billion the prior month.

To contact the reporters on this story: Randall Woods in Washington at rwoods13@bloomberg.net, Katherine Greifeld in New York at kgreifeld@bloomberg.net.

To contact the editors responsible for this story: Sarah McGregor at smcgregor5@bloomberg.net, Randall Woods