China cut its holdings of Treasury notes and bonds by the most ever, raising speculation a plunge in U.S. yields that sent two-year rates to a record low has made government securities unattractive.
The Asian nation’s holdings of long-term Treasuries fell by $21.2 billion in June to $839.7 billion, a U.S. government report showed yesterday. Total Chinese investment in U.S. debt declined 2.8 percent to $843.7 billion, the least in a year, following a 3.6 percent slide in May.
China, America’s largest creditor, is cutting back after scrapping its currency peg in June, giving it less reason to buy dollars and invest them in Treasuries. China is also turning more bullish on Europe and Japan, purchasing bonds of both nations. The shift comes as President Barack Obama increases U.S. debt to record levels, counting on overseas investors to buy, as he borrows to sustain the U.S. economic expansion.
“This may have been opportunistic,” said James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley, one of 18 primary dealers that trade with the Federal Reserve. “Look at the level of yields. If you’ve held a lot of Treasuries, you’ve done well.”
The two-year note yielded 0.51 percent as of 9:11 a.m. in London, after falling to a record 0.48 percent earlier today. The 0.625 percent security due July 2012 traded at 100 7/32, according to data compiled by Bloomberg.