China retained its lead over Japan as the largest foreign creditor to America in March, US Treasury Department data shows.
China's holdings of Treasuries fell 0.1 per cent in March to US$1.25 trillion, while Japan reduced its stake by 0.05 per cent to US$1.1 trillion, according to data released yesterday. China held 11 per cent of the US debt, compared with 9.7 per cent by Japan. China's stake reached a record US$1.31 trillion in July 2011.
Demand for the US debt from overseas investors slowed in March as the US economy showed signs of improvement and as speculation increased that Japan would expand its purchases of its own government securities. The Treasury 10-year note reached 2.08 per cent on March 11, the highest this year. Yields declined later in the month on concern financial turmoil in Cyprus would renew the euro zone's sovereign debt crisis.
"China's showed continued faith in the US over the long run, otherwise you wouldn't be adding US$100 billion over the last few months," said Aaron Kohli, an interest-rate strategist at BNP Paribas in New York.
Foreign currency reserves held by China have risen 4.8 per cent since September to US$3.44 trillion, according to the People's Bank of China. The nation's Treasury holdings increased US$96.9 billion in that period.
Data revisions showed China held US$1.2519 trillion of Treasuries in February, more than the US$1.2229 trillion first reported for the period on April 15. The Treasury is revising the data on a monthly basis rather than annually based on the nationality of the beneficial holder of the debt, while initial data will still count the location of the purchase. For the year, China's holdings grew US$30.1 billion, or 2.5 per cent.
"The fact that we're seeing a reach for yield within the sphere of US debt is an indication that there's a perception of a better risk profile for dollar-based assets than, say, Europe," said Ian Lyngen, a government bond strategist at CRT Capital Group.