January 17, 2018 / 11:48 PM / 4 months ago

China and Japan reduce U.S. Treasuries positions in November

NEW YORK (Reuters) - China and Japan, the two biggest foreign U.S. creditors, reduced their holdings of U.S. government debt in November when the dollar weakened against the two countries’ currencies, data from the U.S. Treasury Department released on Wednesday showed.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

Their reduced position in Treasuries supported the notion that foreign central banks are cutting back their dollar exposure in their foreign exchange reserves.

“Reserve diversification has grabbed headlines recently with the underperformance of both the U.S. dollar and Treasuries consistent with expectations of central banks reducing allocation to USD (U.S. dollar),” Bank of America Merrill Lynch strategists Adarsh Sinha and Yang Chen wrote in a research note on Wednesday.

Last month, the International Monetary Fund said the dollar’s share of global currency reserves shrank in the third quarter of 2017 to 63.5 percent, its smallest since mid-2014.

China’s holdings of U.S. Treasuries fell to $1.176 trillion in November, its lowest in four months. The largest foreign holder of U.S. government debt owned $1.189 trillion in October, according to the Treasury’s latest capital flows data.

Japan, the second largest holder of Treasuries, scaled back its stake in U.S. government debt for a third straight month to $1.084 trillion. This was the lowest level since $1.083 trillion in June 2013.

Overall foreign official institutions sold $6.7 billion in Treasuries in November. They have been unloading their U.S. government debt holdings nearly every month going back to at least 2014.

Back in November, the Chinese yuan CNY= gained 0.36 percent versus the greenback, while the Japanese yen JPY= rose 0.97 percent against the dollar, Reuters data showed.

The dollar ended up 2017 with its worst annual performance since 2003 on expectations central banks besides the Federal Reserve are preparing to end the emergency policy measures they adopted to combat the 2008 global credit crisis and the recession that ensued.

PRIVATE OVERSEAS DEMAND PERSIST

While overseas central banks continued to roll back their Treasury exposure, private offshore investors have shown steady appetite for U.S. stocks and corporate bonds amid an improving global economy.

Net overseas purchase of domestic equities totaled $12.67 billion in November, marginally higher than $12.31 billion the month before.

Total net purchase of corporate bonds grew to $28.7 billion, the most in at least January 2014.

Overall offshore investors amassed $33.8 billion in U.S. securities November after buying $152.9 billion the month before.

Reporting by Richard Leong; Editing by Chizu Nomiyama and Tom Brown

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