China Reduced Its Holdings of U.S. Treasuries by Most on Record in August
By Daniel Kruger - Oct 18, 2011
China, the largest-foreign lender to the U.S., reduced its holdings of Treasuries in August by the most in at least a decade as the stripping of America’s AAA credit rating by Standard & Poor’s sent yields to record lows.
The world’s second-largest economy cut its position in U.S. government securities by $36.5 billion, or 3.1 percent, to $1.14 trillion, according to Treasury Department data released yesterday in Washington. At the same time, the data showed total foreign ownership increased 2 percent to a record $4.57 trillion as global investors sought a refuge from the financial market turmoil that followed the downgrade.
Treasuries beat stocks and commodities in August as the combination of the downgrade to AA+, slowing U.S. growth and Europe’s debt crisis drove investors into the world’s biggest and most-liquid debt market. The Treasury data also showed that holdings of Treasuries increased in the U.K. and Caribbean, where other nations often conduct purchases through.
The move in China’s figure “is not a question of people disinvesting in the U.S. because there’s a negative macro outlook,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 22 primary dealers that trade Treasuries with the Federal Reserve. “This is a lot more technical in nature that has to do with dollar strengthening and opportunistic selling, given how low yields went.”
Treasuries returned 2.8 percent in August, while the global bond market gained 1.99 percent, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks fell 7 percent the same month, the biggest slump since May 2010, and the Standard & Poor’s GSCI Total Return Index of commodities lost 1.8 percent. Since August, the U.S. Treasury Master Index has gained 0.76 percent through Oct. 17.
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