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.
The nation raised its note and bond holdings by $1.655 billion to a record $1.16 trillion and added $1.57 billion of bills to $4.55 billion, according to the Treasury Department data released yesterday. 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.
‘Debt Bomb’
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.
To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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