April 16, 2018 / 9:39 PM / 3 months ago

UPDATE 1-China holdings of U.S. Treasuries increase in February -data

(Adds details, graphic, analyst comment, byline)

By Gertrude Chavez-Dreyfuss

NEW YORK, April 16 (Reuters) - China’s holdings of U.S. Treasuries rose in February, as net new foreign purchases increased to their largest since May 2017, data from the Treasury Department showed on Monday.

Data showed China’s holdings rose to $1.177 trillion from $1.168 trillion in January. China remains the largest non-U.S. holder of Treasuries.

“This was sort of a giveback with respect to China,” said Gennadiy Goldberg, interest rates strategist at TD Securities in New York. “China did buy $8-1/2 billion in Treasuries in February, but they actually sold $16.7 billion the previous month.”

Overall foreign holdings of U.S. government bonds and notes rose to $6.21 trillion in February from $6.260 trillion the previous month. The increase came after three straight months of declines.

That said, foreign demand for Treasuries has slowed overall in the second half of February, which included a near-record sales week, as the government boosted issuance to help fund U.S. President Donald Trump’s tax overhaul and a two-year budget deal, according to Treasury data.

Net new purchases of Treasuries swelled to $43.186 billion, the largest since last May.

“Treasury rates actually peaked in February,” said Goldberg. “Higher rates have made Treasuries more attractive.”

Benchmark U.S. 10-year yields hit a high of 2.957 percent, which was the highest since January 2014.

February’s data also does not yet reflect the ongoing trade tension between the United States and China. U.S. President Donald Trump announced his plan to would impose hefty tariffs on imported steel and aluminum to protect U.S. producers on March 1.

“That’s more of a slow-burning story,” said Goldberg. “It’s a bit too soon for any tariff talk to have an impact of China’s Treasury holdings.

He added that China holds Treasuries for monetary policy reasons and to regulate its currency.

“Selling U.S. Treasuries would be a last resort for China,” Goldberg said.

Japan’s holdings of Treasuries, meanwhile, declined in February to $1.059 trillion, their lowest level since December 2001, data showed. Japan is still the second largest holder of Treasuries.

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

U.S. stocks, meanwhile, saw outflows of $1.202 in February, from $34.454 billion in February. January stock inflows were the largest since May 2007.

Data further showed that offshore investors purchased $49 billion in long-term U.S. assets after buying a revised $61.4 billion in January. Including shorter-dated securities, overseas bought $44.7 billion in February, from a revised $122.6 billion the previous month.

Reporting by Gertrude Chavez-Dreyfuss; Graphic by Richard Leong; editing by Jonathan Oatis

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