China’s Big Banks Have a Secret Weapon Against the Yuan – And It’s Made in America
AT A GLANCE
- Chinese banks have been buying U.S. Treasuries for months, sources say, a previously unreported shift in strategy
- Dollar deposit rates for large balances have jumped from a 2.8% cap to above 3%, even near 4% at some banks since August
- The 10-year Treasury yield has climbed over 30 basis points since June, to 4.76%
- The move may be helping Beijing slow the yuan’s rise while easing pressure on ultra-low domestic bond yields
With domestic bonds offering almost nothing, Chinese lenders are chasing better returns in Washington, and reshaping currency dynamics along the way.
Chinese banks have quietly ramped up purchases of U.S. Treasuries in recent months, according to people familiar with the matter. The strategy shift, not previously reported, follows a wave of dollar deposit rate hikes designed to pull in more greenbacks.
KEY DETAILS
Dollar rates at China’s “Big Five” state banks were capped at 2.8% since 2023, but large depositors have negotiated above 3% since June, with some smaller and foreign banks offering nearly 4% since August. After paying those rates, banks pocket the spread by parking funds in Treasuries. Foreign exchange deposits in China hit $1.18 trillion by end-July, up 17.9% year-on-year.
MARKET REACTION
The 10-year Treasury yield has risen over 30 basis points since June, driven by inflation concerns and a stronger U.S. growth outlook — making Treasuries even more attractive against 0.95% yuan deposit rates.
Domestic Chinese bond yields are painfully low, and regulators are watching that market closely. Soaking up dollars this way also helps slow the yuan’s nearly 9% rally since last year, without Beijing directly intervening.
Whether this meaningfully shifts China’s overall $633.4 billion Treasury holdings, near a 17-year low, remains unclear. Watch dollar deposit rates and yuan moves for the next signal.
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Source: Reuters
