China's Net Purchase of U.S. Treasury Bonds for 4 Consecutive Months... Impact of Rising U.S. Interest Rates and Trade Surplus

US Treasury Holdings Reach $1.1 Trillion, Highest Since July 2019

[Image source= Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Bloomberg News reported on the 15th (local time) that China's holdings of U.S. Treasury bonds increased to the highest level since July 2019.

According to a report released by the U.S. Treasury Department on the same day, China net purchased $9 billion worth of U.S. Treasury bonds in February. China has net purchased U.S. Treasury bonds for four consecutive months, marking the longest period of net purchases since 2017.

Bloomberg analyzed that China increased its holdings because U.S. Treasury yields rose. The 10-year U.S. Treasury yield rose by 0.34 percentage points in February alone. An increase in bond yields means a decline in bond prices. The Bloomberg Barclays U.S. Treasury Index fell by 1.8% in February. U.S. Treasury prices recorded the largest loss in the first quarter of this year since 1980. This was influenced by expectations of economic recovery following the introduction of the $1.9 trillion stimulus bill by the Joe Biden administration, concerns about rising inflation, and a decline in the preference for safe assets. As a result, Treasury yields rose accordingly.

Peter Chia, an investment strategist at Academy Securities, analyzed that the increase in exports was the reason China purchased U.S. Treasury bonds. He explained, "China resumed exports earlier than other countries. Purchasing Chinese products means a large inflow of funds into China, which increases the need to buy more U.S. Treasury bonds."

In fact, China's export value in the first quarter of this year increased by 38.7% year-on-year to 4.61 trillion yuan, and the trade surplus in the first quarter rose by 690% year-on-year to 759.3 billion yuan. When the trade surplus increases and dollars flow into China, it becomes a factor for yuan appreciation. China can use the increased dollars to purchase U.S. Treasury bonds to reduce the pressure for yuan appreciation.

China's cumulative holdings of U.S. Treasury bonds increased to $1.1 trillion. China holds the second largest amount of U.S. Treasury bonds in the world, following Japan.

As of February, Japan's holdings of U.S. Treasury bonds were $1.26 trillion, down about $185 billion compared to January. Japan reduced its U.S. Treasury holdings in six out of the past seven months.

The total holdings of U.S. Treasury bonds by foreign investors were estimated at $7.1 trillion.

This content was produced with the assistance of AI translation services.