China increased its holdings of U.S. treasuries in February by US$8.7 billion, or 0.7%, boosting its total positions to US$1.223 trillion, according to data from the U.S. Treasury department released today.
It means 36% of China’s massive US$3.4 trillion total foreign reserves pool is now in ultra-low yielding U.S. treasuries. The benchmark 10-year treasury yield is around 0.1% percentage in February, and has been mostly moving below 2% during the past 12 months.
On the other hand, the U.S. registered an inflation rate of 1.7% in 2012 and 3% in 2011. Even though the U.S. Federal Reserve anticipates that inflation over the medium term likely will run at or below its 2 percent objective, nearly 40% of China’s huge foreign reserves are still potentially losing value everyday.
China is the largest foreign holder to U.S. government debt, and Japan is the second largest, with US$1.097 trillion in total holdings. Japan has decreased its U.S. treasury holdings by US$34.8 billion since last October.