May 15, 2019 / 9:39 PM / 7 months ago

UPDATE 2-China sells most long-dated U.S. Treasuries in nearly 2-1/2 years

* Japan's Treasuries holdings hit 16-month high in March

* But transaction data show Japan sells Treasuries

* Foreigners sell U.S. stocks, buy agency, corporate bonds (Updates graphic, adds quote)

By Richard Leong

May 16 (Reuters) - China sold the most long-dated U.S. Treasuries in almost 2-1/2 years in March amid uncertainty about a trade deal between Beijing and Washington, data from the U.S. Treasury Department released on Wednesday showed.

Since last week after a dismal 10-year Treasury auction, there has been renewed speculation whether China may sell its U.S. debt in retaliation for increased tariffs on $200 billion of its exports to the United States.

The latest data on China's U.S. bond holding were collected before a sudden breakdown in trade talks between the world's two biggest economic powers 1-1/2 weeks ago and prior to the U.S. duty hike on Chinese goods, which went into effect on Friday.

China sold $20.45 billion in long-dated Treasuries in March, the most since October 2016, following $1.08 billion in purchases the month before.

China's stake across all Treasury maturities fell for the first time in four months to $1.121 trillion in March, which was the lowest since May 2017 when it was $1.102 trillion. It was $1.131 trillion in February, the data showed.

"Despite the fairly consistent net selling of Treasuries since last June, we think China’s sales over the past year look more like normal FX reserve management than active portfolio diversification," Goldman Sachs analysts wrote in a research note published late Wednesday.

The fixing on the yuan ended at 6.7335 per dollar in March, compared with 6.6166 last June.

Despite the drop in Treasuries holdings, the world's second-largest economy remained the largest U.S. creditor.

On the other hand, Japan raised its total Treasuries holdings to $1.078 trillion, the highest since November 2017, from $1.072 trillion in February.

However, another set of Treasury data showed Japan sold $11.07 billion in long-dated U.S. government debt in March, the most for U.S.'s No. 2 foreign creditor, since February 2018. This suggested Japan's overall increase in Treasuries holdings in March was in short-dated issues.

Meanwhile, foreigners resumed sales of Treasuries in March as U.S. 10-year yields fell to 15-month lows after the Federal Reserve signaled it would not raise interest rates in 2019, according to the latest Treasury data.

They sold $12.53 billion in U.S. government debt in March after buying $19.91 billion the month before.

"Private investors have been big buyers of Treasuries since the beginning of the second half of 2018, but foreign official institutions have been inconsistent," Simons said.

Official overseas selling of Treasuries coincided with a dollar rally in March spurred by safe-haven bids for the greenback amid worries about the global economy, trade tension and uncertainty around Brexit.

Central banks of export-oriented countries often sell their Treasury holdings to defend their currencies from a sharp appreciation of the greenback.

Overseas accounts also sold stocks for 11 straight months, reducing their equity stakes by $23.64 billion in March.

On the other hand, they bought $4.74 billion in agency securities and $1.11 billion of corporate bonds.


The latest data showed a net outflow from the United States totaling $8.1 billion in March, slower than the revised $21.5 billion in February.

Foreign central banks and other government entities accelerated their reduction of U.S. assets, selling $21.7 billion in March versus a revised $10.1 billion the month before.

The official foreign sales in March were offset by net purchases by private overseas investors which acquired $13.6 billion in U.S. assets after a revised $11.4 billion in sales in February.

Reporting by Richard Leong Editing by James Dalgleish, Lisa Shumaker and Jonathan Oatis

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