October 17, 2017 / 9:43 PM / a year ago

UPDATE 1-China Treasury holdings highest since July 2016 -U.S. Treasury data

(Recasts, adds analyst comment, byline, details)

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 17 (Reuters) - China’s holdings of Treasuries in August rose to their highest since July 2016, data from the Treasury Department showed on Tuesday, with some analysts saying the Chinese government was probably buying U.S. government debt to stem the renminbi’s appreciation.

The $34-billion rise in China’s Treasury holdings in August was the largest monthly growth since July last year, as the Chinese central bank bought Treasuries for a seventh straight month.

China’s holdings rose to $1.2 trillion in August, making it the largest non-U.S. holder of Treasuries. Since January, China has added nearly $150 billion in U.S. debt.

“No one knows exactly why China is doing what it’s doing. But I think part of the reason for the increase in Treasury holdings is that the Chinese central bank is trying to slow down the appreciation of the renminbi,” said Cheng Chen, interest rates strategist at TD Securities in New York.

The Chinese currency has gained nearly 5 percent against the dollar so far this year, after falling 6.5 percent in 2016.

A weaker currency would be beneficial for China, making its exports more competitive in price on the global trade market.

The world’s second-largest economy had to sell some of its U.S. Treasury holdings for most of last year as the yuan weakened amid a surge in capital outflow.

Japan, meanwhile, was the second-largest non-U.S. holder of Treasuries, with $1.1 trillion, slipping $12 billion for the month.

Global central banks overall increased their holdings of Treasuries to $6.27 trillion in August, from $6.25 trillion the previous month.

Data also showed that foreigners bought Treasuries to the tune of $11.49 billion in August, after selling $490 million in July, data showed.

Yields on U.S. benchmark 10-year Treasury notes at the beginning of August were 2.251 percent, ending the month at 2.122 percent. On Tuesday, U.S. 10-year yields were at 2.301 percent.

Foreign investors also sold U.S. stocks in August amounting to $5.34 billion, after outflows of $7.66 billion in July. Foreigners have sold stocks for three straight months.

Overall, foreign investors purchased $67.2 billion in long-term U.S assets in August after buying a revised $1.2 billion the previous month. Including shorter-dated securities, overseas investors bought $125 billion, after selling a revised $7.3 billion the previous month. (Reporting by Gertrude Chavez-Dreyfuss)

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