CHINA, Japan and other overseas central banks are leaving more of their U.S. dollars with the U.S. Federal Reserve as they have liquidated their U.S. Treasuries holdings to raise cash in an effort to stabilize their currencies, government data show.

    Foreign central banks’ reduced ownership of U.S. government debt, especially older issues, have bloated the bond inventories of U.S. primary dealers and kept U.S. money market rates elevated in recent months, analysts said.

    Primary dealers, or the top 22 Wall Street firms that do business directly with the Fed, held US$113.5 billion worth of Treasuries in the week ended Feb. 10, the most since October 2013.

    As Wall Street holds more Treasuries, foreign central banks have piled more money into the Fed’s reverse purchase program, where they earn interest income.

    “They have been selling their Treasuries holdings and using more the Fed’s reverse repo program,” said Alex Roever, head of U.S. interest rate strategy at JPMorgan Securities in New York.

    Simon Potter, New York Federal Reserve’s executive vice president, said Tuesday that the Fed’s repo program for foreign central banks has increased because “the constraints imposed on customers’ ability to vary the size of their investments have been removed, the supply of balance sheet offered by the private sector to foreign central banks appears to have declined, and some central banks desire to maintain robust dollar liquidity buffers.”

    On Feb. 17, overseas central banks held US$246.65 billion in reverse repos, up from US$129.78 billion a year earlier, Fed data released last week showed. (SD-Agencies)