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China cuts holdings of US debt after ratings downgrade | China cuts holdings of US debt after ratings downgrade |
(about 3 hours later) | |
China has reduced its holdings of US debt to their lowest level in a year, after the US's credit rating was downgraded by Standard & Poor's (S&P). | China has reduced its holdings of US debt to their lowest level in a year, after the US's credit rating was downgraded by Standard & Poor's (S&P). |
China sold $36.5bn (£23.2bn) in US Treasuries or bonds to cut its holding to $1,137bn in August, latest data by the US Treasury department showed. | China sold $36.5bn (£23.2bn) in US Treasuries or bonds to cut its holding to $1,137bn in August, latest data by the US Treasury department showed. |
In August, S&P cut the US's credit rating to double A+ from triple A over concerns about budget deficits. | In August, S&P cut the US's credit rating to double A+ from triple A over concerns about budget deficits. |
China is the largest foreign buyer of US government debt. | China is the largest foreign buyer of US government debt. |
Other countries in the region such as Hong Kong, Taiwan and Singapore also reduced their holdings of US Treasuries in August. | Other countries in the region such as Hong Kong, Taiwan and Singapore also reduced their holdings of US Treasuries in August. |
"These players are sitting on large dollar-denominated assets already, so they can afford to take a longer view," said Michael Woolfolk of BNY Mellon. | "These players are sitting on large dollar-denominated assets already, so they can afford to take a longer view," said Michael Woolfolk of BNY Mellon. |
"They would have been the ones most concerned about a downgrade on their current holdings," he added. | "They would have been the ones most concerned about a downgrade on their current holdings," he added. |
'Safe-haven appeal' | 'Safe-haven appeal' |
However, the overall demand for US Treasuries increased in August amid rising global economic uncertainty. | However, the overall demand for US Treasuries increased in August amid rising global economic uncertainty. |
The United Kingdom and Switzerland increased their holdings by almost $40bn each, while Japan increased its investment by $21.8bn to $936.8bn. | The United Kingdom and Switzerland increased their holdings by almost $40bn each, while Japan increased its investment by $21.8bn to $936.8bn. |
The have been concerns that the debt crisis in some European economies may hurt growth in the region. | The have been concerns that the debt crisis in some European economies may hurt growth in the region. |
At the same time there are fears that recovery in the US, the world's biggest economy, may be faltering. | At the same time there are fears that recovery in the US, the world's biggest economy, may be faltering. |
Analysts said the combination of these factors reduced the appetite for risk among investors, who have turned to traditional safe havens. | Analysts said the combination of these factors reduced the appetite for risk among investors, who have turned to traditional safe havens. |
"People were afraid of a Lehman-like crisis in August, so money was funnelled into Treasuries - notes and short-dated paper alike," said Mr Woolfolk. | "People were afraid of a Lehman-like crisis in August, so money was funnelled into Treasuries - notes and short-dated paper alike," said Mr Woolfolk. |
Millan Mulraine of TD Securities said: "The flows reinforce the safe-haven appeal that Treasuries continue to enjoy, even if the turmoil was being driven in part by concerns about the quality of these assets". | Millan Mulraine of TD Securities said: "The flows reinforce the safe-haven appeal that Treasuries continue to enjoy, even if the turmoil was being driven in part by concerns about the quality of these assets". |
Location factor | |
However, analysts said the figures may not give a complete picture of China's Treasury holdings. | |
They said that China buys some of its Treasuries through London and those figures do not show up immediately. | |
"It does not show up in the monthly figures but only in the final revised figures at the end of the year," Duncan Innes-ker of the Economist Intelligence Unit told the BBC. | |
This is because in its initial estimates, the Treasury department, attributes all purchases based on the country where they are made. | |
However, the revised data takes into account the origin of the buyers, as opposed to the location where the purchases were made. | |
Last year, the Treasury department revised up China's holdings by $268bn when it published its revised figures. |