China raised its massive US government debt holdings for the first time in six months in March amid soaring foreign bond purchases on the back of European debt concerns, official data showed on Monday.
The Chinese government, the top holder of US government debt, raised its long-term Treasury holdings to US$895.2 billion, up US$17.7 billion from February, the US Treasury Department said in its latest monthly report on global capital flows in the world’s largest economy.
The last time China increased its bond holdings was in September.
China had cut its massive US Treasury bond holdings to the lowest level in at least nine months in February as Beijing resisted persistent US pressure to revalue its currency.
Net foreign purchases of US long-term securities leaped to a record US$140.5 billion in March from US$47.1 billion in February, the Treasury data showed, amid mounting concerns about the Greek sovereign debt crisis.
“Motivated by safe-haven concerns and worries about the Greek debt crisis, private foreign investors increased their purchases of US Treasury bonds and notes, government agency bonds, and even private corporate bonds,” said Tu Packard, a senior economist at Moody’s Economy.com.
“This not only is a strong vote of confidence in the US economy, but also speaks volumes about the extent of investor unease with policy management of the European sovereign debt crisis and the implications for the world economy,” Packard said.
Japan, the world’s second-largest economy and the number-two holder of Treasuries, increased its holding to US$784.9 billion from US$768.5 billion, Treasury International Capital (TIC) data showed.
Britain, the third-biggest holder, also was a net buyer, bumping up its holding to US$784.9 billion from US$768.5 billion in February.
“Most of the demand for Treasuries came from the private sector as foreign central banks bought dollars at a far more modest rate. This suggests that private investors began to move money into the safety of US dollars in March,” said Kathy Lien, research director at Global Forex Trading.
News of the record amount of demand for US dollar-denominated assets in March came as the euro sank to a four-year low against the dollar on Monday amid concerns about sovereign debt problems in Europe.
The strength of the demand for Treasuries suggested that “the April and May data could be even stronger as central banks increase their pace of diversification out of euros,” Lien said.
Michael Woolfolk at Bank of New York Mellon said the TIC data bode well for the budding US recovery from the worst recession in decades.
“These are positive developments for the funding of the US trade deficit and support for the dollar,” he said.
The Treasury report came amid US and international pressure on Beijing to revalue the yuan and ahead of key bilateral talks next week.
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