China’s banks are buying US Treasuries as Beijing tries to slow yuan gains: Report

Chinese banks have been buying US government bonds in recent months after raising the interest rates they offer on dollar deposits, Reuters reported on Friday, citing people familiar with the matter, in a move that highlights the growing appeal of US assets as domestic yields remain low.

The purchases could also help Beijing manage the yuan’s strength. By attracting and retaining dollars inside China and investing those funds in US Treasuries, banks can reduce pressure for those dollars to be converted into yuan, Reuters reported.

The shift comes as US Treasury yields have climbed and Chinese banks face fewer attractive investment options at home.

Reuters said it was unable to determine the size of the purchases or whether they were large enough to materially change China’s overall holdings of US Treasuries.

Why Chinese banks are turning to US Treasuries

Chinese government bond yields have fallen to very low levels, making it harder for banks to earn attractive returns from domestic fixed-income assets.

At the same time, heavy investment in China’s domestic bond market has drawn the attention of regulators.

That has made US Treasuries an attractive alternative. The benchmark 10-year US Treasury yield has risen by more than 30 basis points since the beginning of June to around 4.76 per cent, according to Reuters.

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For banks, the trade is relatively straightforward. They can attract dollar deposits by offering higher interest rates, then invest those dollars in US government debt and earn a return from the higher Treasury yields.

One banking source described the situation as a “famine” of attractive safe assets for Chinese lenders.

Chinese banks raise dollar deposit rates

Dollar deposit rates at China’s biggest state-owned banks have been capped at 2.8 per cent on most deposits since 2023.

But that has started to change. Since June, customers with more than $50,000 in deposits have been able to negotiate rates above 3 per cent, according to a state banking source cited by Reuters.

Some smaller banks and foreign lenders have offered rates approaching 4 per cent since August. Smaller lenders began increasing their dollar deposit rates in June, forcing larger banks to follow to avoid losing dollar funding, Reuters reported.

The result has been a more attractive proposition for Chinese savers to keep their money in dollars rather than convert it into yuan. That is significant because major Chinese state banks currently offer only about 0.95 per cent on yuan deposits.

A stronger yuan creates a fresh problem for China

The moves come as the yuan has strengthened sharply against the US dollar.

China’s currency has gained nearly 9 per cent against the dollar since the beginning of last year, making it one of the world’s stronger-performing currencies.

For Beijing, a rapidly appreciating yuan can create problems for exporters because Chinese goods become more expensive for overseas buyers when measured in foreign currencies.

It can also add to pressure on an economy already facing weak domestic demand.

Higher dollar deposit rates can help absorb some of the dollar liquidity in China and discourage conversion into yuan, thereby reducing upward pressure on the Chinese currency, according to the people cited by Reuters.

The move fits with recent signals that Chinese policymakers are becoming increasingly uncomfortable with the pace of yuan appreciation.

China is swimming in dollars

China has accumulated a large pool of dollar liquidity, partly because of its strong exports and record trade surpluses.

Foreign exchange deposits held in China reached $1.18 trillion at the end of July, up 17.9 per cent from a year earlier, according to People’s Bank of China data cited by Reuters.

During the first seven months of 2026, these deposits increased by $121.2 billion.

That gives Chinese banks a growing pool of dollar funds that can be deployed in overseas assets.

Rather than allowing those dollars to be converted into yuan, banks can offer attractive deposit rates and then invest the funds in US Treasuries.

The strategy also gives banks a way to put money to work outside China’s low-yield domestic bond market.

China’s Treasury holdings are already falling

The development is particularly notable because China’s reported holdings of US Treasuries have been declining for years.

China held $633.4 billion of US Treasuries through US custodians in June, down 13 per cent from a year earlier and the lowest level since September 2008, according to Reuters.

That figure is less than half the peak recorded in 2013.

However, the official data may not capture the full picture. Some Chinese Treasury holdings can be held through custodians in financial centres such as Luxembourg and the Cayman Islands, making it difficult to determine the ultimate owner.

The recent purchases by Chinese commercial banks therefore do not necessarily signal a reversal in China’s overall Treasury strategy.

Instead, they point to a more nuanced shift: Chinese banks are increasingly willing to use dollar liquidity to buy US government debt when domestic investment opportunities offer lower returns.