China boosted its holdings of U.S. government debt by 0.5 percent to $1.17 trillion in June, the third straight monthly increase, while other foreign investors were sellers of Treasuries for the first time since 2009.
Chinese raised its note and bond holdings by $1.655 billion to a record $1.16 trillion and ownership of bills by $1.57 billion to $4.55 billion, according to the Treasury Department data released Monday. The bill purchases were the first since January by the largest foreign lender to the U.S. as the Federal Reserve completed its $600 billion in purchases in June.
China’s trade surplus surged to $31.5 billion, the highest level in more than two years, as exports rose to a record, the customs bureau reported on Aug. 10. Outbound shipments climbed 20.4 percent from a year earlier in July, compared with the 17 percent median forecast in a Bloomberg News survey of 25 economists. Imports jumped 22.9 percent. The surplus exceeded a median forecast of $27.4 billion.
“China continues to accumulate dollars as we continue to import from them and they have to do something with them, so they buy Treasuries,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The addition of shorter-date paper represents some of the flight to quality around the end of quantitative easing.”
Foreign investors sold $4.487 billion of U.S. notes and bonds in June, after the buying of $37.954 billion in May, the Treasury said. The last time foreign investors were net sellers was in January 2009, with net selling of $11.7 billion.
The bill purchases by China represent a reversal of the build-up in longer-term holdings and the contraction of shorter- term assets reflects a shift in Communist nation’s Treasury holdings to emphasize longer-term assets, even as China’s Xinhua News Agency, in a commentary dated Aug. 2, warned the U.S. still faces a “debt bomb.”
Global demand for U.S. stocks, bonds and other financial assets weakened in June from a month earlier as the White House and Congress wrangled over raising the debt limit, while China increased its purchases of America’s debt.
Net buying of long-term equities, notes and bonds totaled $3.7 billion during the month, compared with net buying of $24.2 billion in May, the Treasury Department reported.
“In June, as the U.S. continued to display dysfunction in Washington ahead of an expiring debt ceiling coupled with the threat of a U.S. downgrade, foreigners were much less interested in putting their money in U.S. securities,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, via e-mail.
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