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China ends streak of cutting US Treasury holdings

China ended a six-month streak disposing of its US Treasury holdings in December, adding to its position for the first time since last May as the country’s central bank seeks to manage capital flight.

The country, which ceded its status as the world’s largest owner of haven Treasuries in October to Japan, added $9.1bn of US sovereign debt to its reserves in the final month of 2016, new data from the Treasury and Federal Reserve showed on Wednesday.

China’s foreign exchange reserves slipped below the $3tn level for the first time in January, a near six-year low as the central bank intervened in markets to stabilise the renminbi, separate data from the People’s Bank of China showed last week.

In its effort to stem outflows, Beijing has tightened capital controls, including curbs on foreign acquisitions. Higher interest rates have also bolstered the attraction of keeping money onshore.

Despite the growth in China’s portfolio of Treasuries in December, over the year its total holdings of Treasuries dropped by the greatest amount ever annually, falling $188bn in 2016. Of the thirty largest disclosed holders of Treasuries, half reduced their positions last year, including Japan, Switzerland, Saudi Arabia and Belgium.

Thomas Simons, a money market economist with Jefferies, noted that Belgian holdings were of keen interest because they are often seen as a proxy for China. In December, Belgium’s ownership of Treasuries rose by $6.9bn.

“Belgian holdings have been a point of focus due to extreme volatility,” he said. “This is significant because it is widely speculated that China executes trades with Treasuries held in custody in Belgium.”

China held Treasuries worth $1.06tn at the end of the year, compared with $1.09tn held by Japan.

Via FT