June 17, 2019 / 9:22 PM / 6 months ago

China holdings of U.S. Treasuries in April skid to nearly two-year low

NEW YORK (Reuters) - China’s holdings of U.S. Treasury bonds and notes for the month of April fell to the lowest level since May 2017, data from the U.S. Treasury department showed on Monday, highlighting an uncertain outlook on a trade deal between Beijing and Washington.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 17, 2019. REUTERS/Brendan McDermid

Chinese holdings of U.S. government debt declined for a second straight month, to $1.113 trillion in April, from $1.120 trillion the previous month. Even so, the world’s second-largest economy remains the largest non-U.S. holder of Treasuries.

(For a graphic on 'China, Japan Holdings of U.S. Treasuries' click tmsnrt.rs/2DJ1ckW)

Belgium, which analysts surmised is where China would typically keep some of its holdings, also fell to $179.8 billion in April, from $186.6 billion in March.

“This is a head-scratcher given that Chinese reserves during the month only declined by just under $4 billion,” said Gennadiy Goldberg, senior rates strategist, at TD Securities in New York. “So there’s quite a bit more selling than would have been justified.”

He said it could have been profit-taking from the build-up of holdings in the first quarter of the year. “If you look at the flow of funds, for example, there was notable buying of Treasuries in Q1. So this certainly suggests that foreigners are taking more profits off the table,” Goldberg said, while saying he does not think the decline was related to the trade conflict.

“If this were trade-related, you would have seen either more pressure on the Chinese yuan and you would have seen a decline in foreign exchange reserves on a one-for-one basis,” Goldberg said.

If Belgium’s holdings were included, it was almost a $15 billion decline.

The data showed that Japan, the second-largest non-U.S. holder of Treasuries, also reduced its holdings of Treasuries in April, to $1.064 trillion, from $1.078 trillion the previous month.

Overall, foreign holdings of Treasuries dropped to $6.433 trillion in April, from $6.473 trillion in March.

Foreign flows of U.S. Treasuries, meanwhile, showed an inflow of $16.949 billion in April, from net selling of $12.526 billion in March. Offshore private investors purchased Treasuries, at $45.366 billion during the month, from only $91 million previously.

(For a graphic on 'Foreign purchases of U.S. Treasuries' click tmsnrt.rs/2TM2p21)

Foreigners continued to sell U.S. stocks in April to the tune of $964 million, after outflows of $23.638 billion in March. Foreign investors have sold stocks for 12 straight months.

The report showed foreigners bought $46.9 billion in net long-term securities in April, after selling $25.9 billion in March.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Thomas and Leslie Adler

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