Chinese banks seen purchasing Treasuries after wooing dollar deposits
Chinese banks have been buying US Treasuries over the past few months after lifting dollar deposit rates, according to people familiar with the matter, moves that could help slow gains in the yuan and...
Chinese banks have been purchasing US Treasuries since raising their dollar deposit rates, according to sources familiar with the matter. This move could help to moderate the yuan's appreciation and follows a significant increase in US yields. The transactions, which have not been previously disclosed, signify a shift in strategy for Chinese commercial banks.
However, Reuters was unable to determine the exact amounts involved or whether the purchases would have a substantial impact on China's overall holdings of US Treasuries.
Most Chinese banks receive a maximum yield of 2.8% on most deposits, with account holders holding over $50,000 able to negotiate higher rates since June. In some cases, rates have even reached close to 4% at smaller banks or foreign lenders since August. By offering dollar deposits at these rates, banks can earn income from Treasuries. As domestic yields are too low, banks are seeking out dollar deposits to purchase US Treasuries.
The 10-year yield has risen over 30 basis points since mid-June, driven by inflation, US debt concerns, and an improved US growth outlook. Banks are reluctant to convert yuan to dollars due to recent regulatory scrutiny of offshore investments. Nevertheless, there is a considerable amount of dollar liquidity in China, with foreign exchange deposits rising to $1.18tn at the end of July, representing a 17.9% increase from the previous year.
Higher deposit rates in China have made keeping money in US dollars more appealing than converting it into yuan.
This move aligns with China's efforts to slow the rise of its currency amid domestic economic struggles. Higher deposit rates help absorb dollars and prevent the yuan from appreciating too quickly. The yuan is among the stronger currencies against the dollar, having gained nearly 9% since the beginning of last year. Moreover, China's bond market has been the world's strongest since the start of the Middle East conflict in February.
However, it remains to be seen whether the banks' recent purchases of US Treasuries will significantly increase China's overall holdings, which have dropped to $633.4bn in June, the lowest since September 2008 and less than half of a 2013 peak.
Written by urgent.news from Gulf Times Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
