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.