Business / Financial Markets

2017 saw biggest rise in China's holdings of U.S. Treasurys in seven years

Bloomberg

In a sign that its demand for American debt remains resilient, China increased its holdings of U.S. Treasurys last year by the most since 2010.

The value of China’s holdings of U.S. bonds, notes and bills rose by $126.5 billion to $1.18 trillion in December from a year earlier, according to Treasury Department data released Thursday in Washington. China remains the largest non-U.S. holder of debt followed by Japan — whose holdings fell for the fifth straight month in December, to $1.06 trillion after ending 2016 at $1.09 trillion.

China’s Treasury holdings are coming under extra scrutiny after a signal earlier this year that America’s largest creditor may be easing bond-buying amid rising trade tensions.

Chinese officials said last month that as part of a foreign exchange review, the government is considering slowing or halting purchases of U.S. Treasurys as they’ve become less attractive relative to other assets. A pullback could complicate plans by the U.S. to ramp up borrowing to finance widening budget deficits, and efforts by the Federal Reserve to limit market turbulence from gradually unwinding its balance sheet.

Threats by President Donald Trump to crack down on trade with China have sparked concerns that the Asian nation could use U.S. Treasurys as a tool for retaliation.

China’s foreign exchange holdings clocked a 12th straight monthly increase in January, climbing to $3.16 trillion, lifted by a strong yuan and the use of capital controls to help stabilize outflows. The yuan has extended its gains by 2.6 percent against the dollar since the start of this year, after posting its first annual gain in four years in 2017.

Belgium’s ownership of Treasurys, often seen as a home to China’s custodial accounts, was little changed at $119.2 billion in December from a year earlier.

Net foreign purchases of U.S. equities totaled $35.1 billion in December, up from $12.6 billion a month earlier. The data covers last year’s stock market rally, which extended into January before market volatility fueled by inflation worries in February wiped out some of those gains. Total net sales of corporate bonds were $1.25 billion, compared with $28.7 billion in purchases a month earlier.