China boosted purchases of US government debt for a second straight month in February, US Treasury data showed on Monday, but foreign demand for long-term US assets weakened.
Even China’s buying was concentrated in short-dated assets such as bills, analysts said, a possible sign China’s willingness to extend cheap loans to the US government is fading.
“We’re still concerned about China because it’s clear they are not investing in US long-term Treasuries at the pace they used to,” said Michael Woolfolk, senior strategist at BNY Mellon in New York.
China, the largest foreign US creditor, increased Treasury holdings by $12.7 billion to $1.179 trillion, the second straight monthly increase after five months of net selling.
Over the weekend, China widened the yuan’s trading band against the dollar, suggesting authorities feel the economy is healthy enough to withstand a stronger currency. That would reduce the central bank’s need to hold down the yuan’s value by buying Treasuries. China’s foreign exchange reserves total more than $3 trillion, with more than two-thirds thought to be in dollars.
“China can’t just stop buying Treasuries. That would hurt them given their overall position,” said Douglas Borthwick, managing director of Faros Trading in Stamford, Connecticut.”