China holdings of US Treasuries rise in Feb

Experts discuss possible reduction prompted by ongoing trade dispute

China’s holdings of US Treasuries rose in February, as net new foreign purchases increased to their largest since May 2017, data from the US Treasury Department showed.

Data showed China’s holdings rose to $1.177 trillion from $1.168 trillion in January.

China remains the largest non-US holder of US Treasuries.

February’s data also does not yet reflect the ongoing trade tension between the US and China.

“That’s more of a slow-burning story,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.

“It’s a bit too soon for any tariff talk to have an impact on China’s Treasury holdings,” said Goldberg. “Selling US Treasuries would be a last resort for China.”

In response to market concerns that China could reduce its Treasuries holdings as a countermeasure against US tariff actions on Chinese products, Chinese Vice Finance Minister Zhu Guangyao said earlier this month that China is a responsible investor and respects international capital market rules.

“China manages its foreign exchange reserves via market operations in accordance with market rules, specific market principles and the principle of diversified investment,” he said, citing remarks made by Chinese Premier Li Keqiang on forex reserves management in March.

China’s foreign exchange reserves rose to $3.1428 trillion at the end of March, according to data from the People’s Bank of China, the country’s central bank.

Overall foreign holdings of US government bonds and notes rose to $6.291 trillion in February from $6.260 trillion the previous month. The increase came after three straight months of declines.

That said, foreign demand for Treasuries slowed overall in the second half of February, which included a near-record sales week, as the government boosted issuance to help fund US President Donald Trump’s tax overhaul and a two-year budget deal, according to Treasury data.

Japan, the second largest holder of US Treasuries, cut its holdings by $6.3 billion to $1.0595 trillion in February.

Benchmark US 10-year yields hit a high of 2.957 percent, which was the highest since January 2014.