December 17, 2018 / 10:07 PM / in a month

UPDATE 1-China, Japan pare U.S. Treasury holdings in October -data

(Adds comment, details, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 17 (Reuters) - China and Japan, two of the largest non-U.S. holders of Treasuries, slashed their holdings of U.S. government debt in October, Treasury Department data showed on Monday, in line with the decline in global reserves.

China had $1.138 trillion in U.S. Treasuries in October, down from $1.151 trillion the previous month. The world’s second-largest economy has cut its Treasury positions for five straight months, but remains the largest holder of U.S. Treasuries outside the United States.

“China’s foreign exchange reserves fell during the month of October, perhaps as it was trying to defend its currency. They sell Treasuries to do that,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York.

The Chinese yuan has been down about 6 percent against what has been a resurgent U.S. dollar.

Japan also reduced its U.S. Treasury holdings, to $1.018 trillion from $1.028 trillion in September, marking the third consecutive month of paring.

“Japan is reducing its holdings of Treasuries because on a currency-hedged basis, dollar holdings are not very attractive for them from a yield pick-up perspective,” Goldberg said.

Japanese investors typically buy Treasuries on a cross-currency hedged basis. The advantage has gone against U.S. debt because of the rise in Libor cost.

Overall, foreign holdings of Treasury securities declined by more than $25 billion in October to $6,199 billion, from $6,225 billion the previous month, consistent with falling foreign exchange reserves.

Analysts said global FX reserves have been steadily weakening since May.

Data also showed a minor inflow in U.S. Treasuries for the month of October to the tune of $1.72 billion, following an outflow of $11.53 billion in September. The inflow mainly came from private investors, who bought $44.88 billion in Treasuries, offsetting an outflow of $42.65 billion from foreign official institutions.

The report also showed foreigners in October bought net long-term U.S. securities for a fourth straight month, totaling $31.3 billion, up from $30.8 billion in September.

Foreigners, however, sold $22.16 billion in U.S. stocks in October, up from $16.91 billion in September, selling for six straight months. (Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis and Dan Grebler)

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