Nation's holdings of US treasury bonds rebound

09:57, June 17, 2010

China has increased its holdings of US treasury debts for the second consecutive month, breaking the $900 billion barrier for the first time since last year.

China's holdings of US debt rose by $5 billion over the previous month to $900.2 billion as of April, according to figures released by the US Department of Treasury local time Tuesday. China remains the largest purchaser of the US treasury debts as of April, followed by Japan with holdings totaling $795.5 billion. Major foreign holders of treasury securities generally saw an increase in their holdings.

The country's bond holdings fell below $900 billion in December last year when it cut $34.2 billion worth of bonds, the largest sell off so far. China's holdings increased by $136.7 billion since April 2009.

There are no better alternatives than US treasury bonds in terms of risk hedging and value maintenance, particularly in light of the European debt crisis, said Lu Zhengwei, a Shanghai-based economist with Industrial Bank.

Some analysts suggested that boosting the amount of other reserves such as gold is a way to reduce risks of over-dependent on US debts.

But the government has disagreed with this approach. "Gold cannot be a major investment channel for foreign exchange reserves," Yi Gang, the director of the State Administration of Foreign Exchange (SAFE), said in March.

The country's gold reserves were the fifth largest worldwide as of the end of 2009 with a total of 1,054 tons, SAFE said in an annual report on foreign exchange management released June 10.

The role gold plays in the country's asset portfolio remains restrained by factors including the small size of the market, poor liquidity, price fluctuations, and the relatively high costs of holding and trading, SAFE said in the report.

The government has stated that buying and selling the bonds is part of normal market operations, but some analysts have questioned their motivation.

Lu said the continuing purchase of treasury debts right now might be an action aimed at allaying pressure on yuan appreciation by the US government.

"Now is not a good time to increase holdings treasury bonds because the earning yields are low," he added.

Source: Global Times