China resumes purchase of US bonds

China bought a net $7.6 billion in US treasury bonds in April, reversing from five consecutive months of net selling, according to the monthly data released Wednesday night by the US Department of the Treasury.

The April Treasury International Capital Report said China’s holding of Treasury bonds of the US increased to $1.153 trillion in April, from $1.145 trillion in March. China is still the world’s largest foreign holder of US government bonds.

China has been selling its US treasury bonds for five months since October 2010 and in March alone, it sold a net $9.2 billion.

“China needs to allocate its growing foreign exchange (forex) reserves to different bond types and bond markets, according to market conditions, bond terms and return rates,” Zhao Xijun, deputy dean of the School of Finance at Renmin University of China, told the Global Times Thursday.

The US has the most diverse bond portfolio and its treasury bonds are stable investment for China, said Zhao.

“Buying or selling the treasury bonds is just a temporary tactical adjustment, which does not reflect or effect long-term strategic investment changes,” Luo Yuding, deputy dean of the School of Finance at Shanghai University of Finance and Economics, told the Global Times Thursday.

“In the short term, credit ratings for treasury bonds of different countries are changing and US bonds are relatively well rated; in the medium to long term, US bonds are a safer choice, given the position of the US in the global economy,” said Luo.

China has a relatively fixed forex investment portfolio and any adjustment needs to take into account its impact on the stock. China already plays an important role in the US bond market, so its large holding of the US national debt is hard to change, Luo added.

“If I was a bond investor, I would refer to credit ratings and interest rates, which are more important indicators than the change in China’s holdings,” said Luo.

Statistics in June showed China increased the purchase of Japan’s long-term national debt by 1.33 trillion yen ($16.6 billion) in April and its holding of South Korea’s bonds increased for 23 consecutive months from 2009 to May 2011.

China’s forex reserves grew by an annual 24.4 percent to reach $3.045 trillion by March 2011, exceeding $3 trillion for the first time, according to statistics released by People’s Bank of China.

Source: Global Times

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