China ready to buy more treasuries as yuan stabilizes

Bloomberg

China is prepared to increase its holdings of US Treasuries under the right circumstances, as officials judge the assets are becoming more attractive than other sovereign debt and as the yuan stabilizes, according to people familiar with the matter. Treasuries surged on the news, driving yields to the lowest since November.
The people didn’t specify the exact circumstances for continuing a run of purchases that has extended to two months through March, after reductions in all but one of the previous eight months. The nation has maintained the trend, said the people, who asked not to be identified because they aren’t authorized to comment on the matter publicly. The yuan has climbed more than 2 percent against the dollar this year, after plunging 6.5 percent in 2016 in its biggest decline in more than two decades.
While China reduced its ownership of Treasuries last year by the most in data going back to 2000 as it sought to defend the yuan, it has since changed strategy and added to its holdings in the two months through March. Policy makers have also recently signaled support for the currency, with a senior central bank official saying that the nation is looking to promote yuan globalization and the government announcing on May 26 that it’s considering changes to the currency’s fixing mechanism to reduce volatility.
“When the yuan appreciates, China has the opportunity of building up its foreign reserves as the market has been concerned about the reduction of the reserves,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “Buying US bonds will help boost confidence, as officials want to show that any anxiety about yuan weakness or devaluation was excessive. They don’t want the exchange rate to appreciate or depreciate in a large magnitude before the Communist Party congress later this year.”