Chinese banks have been buying U.S. Treasuries over the past few months after lifting dollar deposit rates, according to people familiar with the matter, moves that could help slow gains in the yuan and which come amid a spike in U.S. yields.
The purchases, which have not been previously reported, represent a shift in strategy for Chinese commercial banks. Reuters was, however, not able to ascertain the amounts of money involved or whether they move the needle in terms of China's overall holdings of U.S. Treasuries.
For many Chinese banks, U.S. Treasuries represent an attractive investment at a time when yields on Chinese government bonds are very low and heavy investment in the domestic bond market has attracted attention from Chinese regulators.
Dollar interest rates offered by China's "Big Five" state-owned lenders on most deposits have been capped at 2.8% since 2023.
But account holders with balances over $50,000 have been able to negotiate rates above 3% since June and even close to 4% at some smaller banks or foreign lenders since August, according to a state banker with direct knowledge of the deals.
Some of the smaller and foreign banks have even sought to woo customers to dollar deposits by advertising on social media.
After paying the deposit rates of 3% to 4%, banks can earn income from Treasuries. The 10-year yield has risen more than 30 basis points since the start of June to 4.76%, on a combination of inflation and U.S. debt worries as well as an improved U.S. growth outlook.
"Essentially, domestic yields are too low, so banks need to attract dollar deposits to purchase U.S. Treasuries," said a separate banking source, saying lenders had been prodded into action by a "famine" of attractive safe assets to invest in.
The source said, however, that banks were reluctant to convert yuan to dollars themselves given recent regulatory scrutiny of offshore investments.
All sources were not authorised to speak publicly on the subject and declined to be identified.
The People's Bank of China (PBOC), the country's central bank, did not immediately respond to Reuters' faxed requests for comment.
