Asian central banks unload U.S. bonds

Asian central banks unload U.S. bonds

TOKYO (Reuter): Asian central banks were seen unloading some of their U.S. Treasury bond holdings, with some reinvesting part of the proceeds into shorter-term U.S. debt, traders and fund managers said yesterday.

"China was among the active U.S. bond sellers in the recent weeks. They seem to be diversifying currencies in their portfolio after having bought U.S. Treasuries massively in the past year," said a chief fund manager at a Southeast Asian investment firm.

China was the fifth largest holder of U.S. Treasury securities at the end of 1996, with holdings of US$46.6 billion, according to Securities Industry Association data.

Last week, the Chinese central bank was said to have sold $1 billion worth of U.S. 10-year Treasury notes, traders said.

Coincidentally, China's T-note sales came after Prime Minister Ryutaro Hashimoto's remark that Japan might be tempted to sell some of its U.S. Treasuries for gold, which sent U.S. financial markets into a turmoil.

But bond traders said China's sales were not directly connected to Hashimoto's remarks, but might have reflected their speculative or portfolio interest.

One bond trader said the bank apparently bought two- and three-year U.S. Treasury notes on Friday, a move that might be aimed at shortening the portfolio maturity.

"The pace of purchases by Asian central banks has recently been decelerating, compared with their aggressive buying stance seen in the last year," said a U.S. brokerage trader.

But this does not mean that they have lost interest in U.S. debts, he said adding that some of the banks bought five-year Treasuries last year.

In foreign exchange markets, Southeast Asian central banks seem keen to unload the long positions in the dollar built above 115 yen, currency dealers said.

"Our feeling is that Asian central banks, including China, were stuck with their long dollar positions which had been built above 115 yen," a Japanese bank trader.

The dollar has been so far prevented from rising above that point due to selling by Japanese exporters and Asian central banks, traders said.

Some traders had speculated that the Chinese central bank might be trying to increase its cash positions by liquidating U.S. Treasuries in preparation for possible speculative attacks on the Hong Kong dollar in the post-handover market.

But a senior Asian currency trader at a major Japanese bank dismissed such a possibility, saying that both Hong Kong and China hold a hefty amount of external reserves.

Furthermore, the bullish Hong Kong stock market and the Chinese government's determination to protect the HK dollar's peg to the U.S. dollar have so far made it difficult for speculators to attack the Hong Kong dollar, he added.

China and Hong Kong signed a bilateral repurchase agreement pact in 1996 to provide liquidity to each other in times of currency crisis.