By Steven C. Johnson
NEW YORK, April 16 China boosted purchases of
U.S. government debt for a second straight month in February,
U.S. Treasury data showed on Monday, but foreign demand for
long-term U.S. assets weakened.
Even China's buying was concentrated in short-dated assets
such as bills, analysts said, a possible sign China's
willingness to extend cheap loans to the U.S. government is
"We're still concerned about China because it's clear they
are not investing in U.S. long-term Treasuries at the pace they
used to," said Michael Woolfolk, senior strategist at BNY Mellon
in New York.
China, the largest foreign U.S. creditor, increased Treasury
holdings by $12.7 billion to $1.179 trillion, the second
straight monthly increase after five months of net selling.
Over the weekend, China widened the yuan's trading
band against the dollar, suggesting authorities feel the economy
is healthy enough to withstand a stronger currency. That would
reduce the central bank's need to hold down the yuan's value by
China's foreign exchange reserves total more than $3
trillion, with more than two-thirds thought to be in dollars.
"China can't just stop buying Treasuries. That would hurt
them given their overall position," said Douglas Borthwick,
managing director of Faros Trading in Stamford, Connecticut.
"But they can just roll over their positions in the short end
rather than buy long-term securities."
Other foreign investors mimicked that behavior in February.
Including short-dated assets such as bills, foreigners snapped
up $107.7 billion from a downwardly revised $3.1 billion inflow
But the United States attracted a net long-term capital
inflow of just $10.1 billion in February after drawing an
upwardly revised $102.4 billion in the first month of 2012.
Woolfolk said reduced demand for long-term Treasuries could
put pressure on the Federal Reserve as it tries to support the
economy and the troubled housing market by keeping long-term
borrowing costs low.
The benchmark 10-year Treasury yield was trading
at 1.98 percent on Monday but briefly spiked to 2.40 percent
last month, which Woolfolk called "alarming" for the market and
Japan, the second-largest foreign holder of Treasuries,
boosted holdings to a record $1.096 trillion.
Overall, foreigners bought a net $15.4 billion in U.S.
government debt in February, down from $83.9 billion the prior