03 Mar 2011
China’s holdings of US government bonds are even higher than this week’s dramatic upward revision by the Treasury Department, say strategists.
On Monday, the Treasury released its annual revision of US Treasury securities held by foreign investors, which sent China’s holdings to $1,160bn at the end of December from a prior estimate of $892bn made just two weeks ago.
The true figure, however, is closer to $1,300bn according to Michael Pond, interest rate strategist at Barclays Capital. Mr Pond’s estimate is based on revised Treasury data that shows UK buying rose from $94.5bn in June to $272bn by the end of December.
“Most of that buying in the UK will get allocated back to China,” said Mr Pond. “The revisions show that China is buying Treasuries through UK money managers.”
The monthly Treasury purchase data released by the US Treasury only records where transactions take place and does not identify the true buyer. Given London’s status as a financial centre, many in the bond market had suspected that the rapid rise in buying out of London last year may have been from China.
“This has been long suspected and now we have some harder evidence,” said Alan Ruskin, strategist at Deutsche Bank. “There is a very heavy China influence within the UK data.”
The Treasury’s revision of the monthly Treasury purchase data are only based on purchases up to June. Many strategists estimate that China’s buying has picked up since then and therefore calculate that the country’s holdings of US Treasuries are higher than official Treasury numbers.
“The revision gets you a clean number through June, but not through to the end of the year,” said Mr Ruskin. Based on the revised data, China’s Treasury holdings rose $48bn from June to December of last year, while the UK holdings increased $177bn during the same period.
That means China’s actual holdings of Treasury securities could be above $1,300bn, said Mr Ruskin.
The much higher level of Treasury ownership by China will ease fears among some bond investors that the country has been diversifying its foreign reserves away from Treasuries and into other currencies.
Aside from China, there was also a major revision in Russia’s holdings, which may be influencing the UK figures. Russia’s Treasury holdings were revised up to $151bn from $106bn
