Doom Cancelled - China will Keep Buying US Treasuries

March 23 (Bloomberg) -- China’s top foreign-exchange official said the nation will keep buying Treasuries and endorsed the dollar’s global role, supporting the U.S. as the Obama administration increases spending to revive growth.

Treasuries form “an important element of China’s investment strategy for its foreign-currency reserves,” Hu Xiaolian, director of the State Administration of Foreign Exchange, said at a briefing in Beijing today. “We will continue this practice.”

Hu’s remarks came as Treasuries extended the worst start to a year since 1996 and less than two weeks after Premier Wen Jiabao said he was “worried” about the safety of the securities. U.S. President Barack Obama is relying on China to keep buying Treasuries as his administration sells record amounts of debt to fund a $787 billion stimulus package.

“China’s so heavily invested in U.S. Treasuries that to stop buying now would have a negative impact that would see China’s investments fall in value,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “It’s pretty important for the U.S. that the main buyers keep making purchases.”

The yield on the 10-year note rose two basis points to 2.66 percent as of 9:25 a.m. in London, according to BGCantor Market Data. The 2.75 percent security due in February 2019 fell 6/32, or $1.88 per $1,000 face amount, to 100 25/32.

Expanding Rescue

The Obama administration will announce details of a plan today to expand the $700 billion rescue of the financial system that will rely on enticing private investors to buy the troubled assets clogging banks’ balance sheets.

China, the biggest foreign holder of U.S. debt, increased its Treasury holdings by 46 percent in 2008 and holds about $740 billion of the securities, according to Treasury Department data.

Wen called March 13 for the U.S. “to honor its promises and to guarantee the safety of China’s assets.”

China was “worried” about its holdings of Treasuries, he said at a press conference after the annual meeting of the legislature, the National People’s Congress.

Yu Yongding, a former adviser to the central bank, said Feb. 10 that the nation should seek guarantees that its Treasury holdings won’t be eroded by “reckless policies.”

Today’s briefing in Beijing was ahead of the Group of 20 nations summit due to start April 2.

‘Road Map’

Chinese officials emphasized the importance of combating protectionism and reforming international financial institutions. Vice Foreign Minister He Yafei called for a “clear timetable and road map” for changes to global bodies, including giving developing nations a larger voice.

The international community should focus on the supervision of the global monetary system rather than debating a replacement for the dollar as the reserve currency, regulator Hu said.

That comment came as a Reuters report said a United Nations panel will next week recommend replacing the dollar and Chinese central bank Governor Zhou Xiaochuan said that the International Monetary Fund should aim in the long term to create a non- sovereign reserve currency.

Reuters cited Avinash Persaud, a member of the U.N. panel. Zhou’s comments were in a speech posted on the central bank’s Web site.

Treasuries declined for a third day before a record sale of $98 billion of notes this week and as gains in stocks damped demand for government securities. The 10-year note gained earlier after Hu’s comments.
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