At a Glance
Chinese banks have been buying U.S. Treasuries after raising dollar deposit rates.
Some dollar deposits now offer more than 3%, with rates nearing 4% at some lenders.
The U.S. 10-year Treasury yield has climbed to 4.76%.
China’s foreign-exchange deposits reached $1.18 trillion at the end of July.
The moves could help slow the yuan’s rapid gains against the dollar.
Chinese banks are chasing higher returns abroad as low domestic yields and a stronger yuan reshape the flow of money.
Chinese commercial banks are turning to U.S. government debt as yields at home remain weak. The strategy comes after lenders raised rates on dollar deposits, giving them more foreign-currency funding to put to work.
KEY DETAILS
China’s major state-owned banks have capped most dollar deposit rates at 2.8% since 2023. Since June, customers with balances above $50,000 have reportedly negotiated rates above 3%, while some smaller banks and foreign lenders have offered rates close to 4%.
Banks can then invest those dollars in U.S. Treasuries. The 10-year Treasury yield has risen more than 30 basis points since early June to 4.76%, supported by inflation concerns, U.S. debt worries and stronger growth expectations.
China’s foreign-exchange deposits stood at $1.18 trillion at the end of July, up 17.9% year-on-year. Yuan deposit rates at major state banks are just 0.95%.
MARKET REACTION
The yuan has gained nearly 9% against the dollar since the start of last year, increasing pressure on Chinese policymakers to slow its rise.
More dollar deposits and overseas Treasury buying could absorb dollar liquidity and ease pressure on domestic bond yields while helping limit further yuan appreciation.
China’s Treasury holdings via U.S. custodians fell 13% year-on-year to $633.4 billion in June, although custody structures can make the figure difficult to track accurately.
Traders will be watching whether Chinese banks keep increasing Treasury purchases, and whether the strategy becomes another tool for managing the yuan.
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Source: Reuters
Time: 12:00 PM EEST
