China's US Treasuries glut still going

China has increased its holding of US Treasuries for the last three months contrary to the perception it's doing otherwise. Analysts argue there are few other low risk, liquid options for the country now.

  • 17 Aug 2011
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China, the largest foreign owner of US Treasuries, continued to raise its holdings in June for the third month in a row, despite much talk on it diversifying assets.

China boosted its holdings by US$5.7 billion to US$1.17 trillion in June, at a time when global demand for US equities, bonds and other financial assets weakened as the US remained deadlocked over the debt ceiling, a situation which was not resolved until August 2.

“If you look at the bigger picture, over a longer period of time, China’s Treasuries holdings level doesn’t change much on a yearly basis. China has been snapping up more US Treasuries recently, but it cut its holdings for some time earlier last year,” said a Beijing-based China economist from a Chinese bank.

“It’s just a matter of bargain-hunting, buying at low prices,” he added.

According to data from the US Department of the Treasury, China reduced its holdings in Treasuries between November and March, but has been increasing its purchases for three consecutive months since April.

The economist said there are few other viable options for China right now. China’s US$3.2 trillion of foreign exchange (FX) reserves is already the world’s biggest; they have doubled in size since the beginning of 2008.

Policymakers want to diversify away from buying US bonds but that remains a distant goal as US Treasuries are still considered the safest and most liquid place to store them.

He added China will, in the longer term, consider diversifying its foreign currency beyond the standard liquid sovereign debt available.

“To diversify risk it could simply increase holdings in euros, pounds, yen, and Swiss franc, buy Asian sovereign bonds, invest in stocks via SAFE or participate in direct investments via the country’s sovereign wealth fund,” he explained.

China Investment Corporation (CIC), the country’s sovereign wealth fund, was established in September 2007 with a registered capital of US$200 billion, and an objective to seek higher returns from riskier investments using part of the country's huge stockpile of FX reserves.

Royal Bank of Scotland (RBS) suggests the alternative investments could range from increased holdings of gold, alternate currencies and emerging market fixed income products.

“Other currencies and the Swiss franc in which emerging markets and presumably non-Japan Asia are underinvested are likely to become favourites,” wrote Sanjay Mathur, an economist at RBS, in a recent research report.

Mathur reckons gold is also a possibility. The Bank of Korea has purchased approximately 25 tonnes over the last two months. This was the first purchase in more than a decade.

  • 17 Aug 2011

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Rank Lead Manager Amount $m No of issues Share %
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1 Citi 42,407.89 189 10.32%
2 HSBC 38,494.81 214 9.37%
3 JPMorgan 35,781.02 156 8.71%
4 Deutsche Bank 20,507.70 77 4.99%
5 Standard Chartered Bank 19,506.54 127 4.75%

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1 Citi 14,063.16 33 16.64%
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5 Santander 5,883.67 23 6.96%

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1 JPMorgan 16,133.76 64 12.48%
2 Citi 15,638.40 57 12.09%
3 HSBC 10,280.54 49 7.95%
4 Deutsche Bank 7,770.04 19 6.01%
5 BNP Paribas 7,584.94 21 5.87%

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1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
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4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

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1 ING 2,154.97 17 9.70%
2 UniCredit 1,729.43 12 7.79%
3 SG Corporate & Investment Banking 1,618.73 14 7.29%
4 Commerzbank Group 1,172.97 10 5.28%
5 Bank of America Merrill Lynch 1,155.31 8 5.20%

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1 AXIS Bank 7,937.37 101 21.68%
2 Trust Investment Advisors 3,739.50 97 10.21%
3 ICICI Bank 2,762.47 77 7.54%
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5 HDFC Bank 2,035.28 56 5.56%