China is driving a jump in Belgian holdings of Treasuries and is a key reason for a plunge in yields even as the Federal Reserve trims its stimulus to support growth, according to Bank of America Merrill Lynch.
The CHART OF THE DAY tracks a 41 percent surge in Belgian ownership of U.S. bonds in the five months through May to $362.4 billion. This came at a time when China, the largest foreign holder of Treasuries, kept its official stockpile around $1.27 trillion. Belgium is home to Euroclear Bank SA, a provider of securities settlements for foreign lenders, which indicates the increase in holdings reflects global rather than local demand, said David Woo, BofA¡¯s head of global rates and currencies.
¡°Holdings in Belgium have skyrocketed,¡± New York-based Woo said in a July 24 email interview. ¡°China is the only foreign official player that fits the Belgium numbers.¡±
The People¡¯s Bank of China bought dollars in the first half of this year to weaken the yuan and stop uncontrolled inflows driven by speculators who saw the currency as a sure appreciation bet. This boosted the nation¡¯s foreign-currency reserves to a record $3.99 trillion in June. China holds about a third of the world¡¯s international reserve assets, excluding gold.
Belgium is the third-largest foreign holder of Treasuries, after China and Japan, official data show. Belgium¡¯s gross domestic product in 2013 was $508 billion compared with China¡¯s $9.2 trillion. The U.S. 10-year yield declined 53 basis points this year to 2.5 percent last week, compared with a decade average of 3.4 percent, data compiled by Bloomberg show.
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