China stepped up its purchases of Treasury debt maturing in more than a year in 2014, while shedding some of its holdings of very short term US debt.
The country’s purchases of Treasury notes and bonds maturing in two to 30 years saw a record net increase of US$185.683 billion last year, surpassing the previous record of US$123.454 billion set in 2009, the Wall Street Journal reported, based on its analysis of capital-flow data released by the US Treasury last week.
China’s total holdings of US government debt fell by US$25.8 billion last year to US$1.2443 trillion at the end of December, according to the Treasury. The decline reflects large sales of Treasury bills that mature in a year or less, the newspaper said.
As a result, long-term Treasury bond prices soared while yields dropped over the past year. The yield on the benchmark 10-year Treasury note fell to 2.173 percent at the end of 2014 from 3.03 percent at the end of 2013.
Meanwhile, China’s buying of long-dated bonds has slowed down in recent months, the report said.
The average monthly net purchases for the first half of 2014 was US$21.8 billion, as China actively intervened to weaken the yuan, much higher than US$9.1 billion a month during the second half of 2014, according to Jonathan Rick, interest rate derivatives strategist at Crédit Agricole in New York.
China reported US$91.2 billion in capital and financial outflows in the fourth quarter last year, the largest in more than a decade.
Frank Warnock, a professor at the Darden Business School of the University of Virginia who specializes in international capital flows, said China may further slow down purchases of US bonds if capital outflows continue this year.
China’s demand for US bonds will decline as its domestic capital markets develop, the renminbi becomes a global currency and the nation’s economy moves slowly away from exports and toward domestic consumption, Warnock was quoted as saying.
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