The Hindu Business Line : India’s holdings of US G-secs fall in May

Bangalore, July 20 India’s holdings of US treasury securities dropped $4.7 billion in May this year, sharpest fall on a month-on-month basis, since the country began investing surplus reserves in foreign government securities.

According to data released by the US Treasury Department, holdings of US treasuries equalled $15.3 billion in May down from April’s figure of $20 billion.

Major financial institutions that are investors in US government securities, besides the Reserve Bank of India, include General Insurance Corporation of India, which have global reinsurance operations, foreign branches/subsidiaries of domestic banks and domestic mutual funds, are permitted to invest in foreign government securities.

The RBI’s investments in foreign government securities are mostly at the short-end of the yield curve, unlike Asian central banks that invest largely in middle and long-term securities for higher yields. The central bank’s preference is more for liquidity of the portfolio and insulation from excessive volatility.

Portfolio reshuffle

Bankers said that the drop in May was largely on account of a rebalancing of portfolios by domestic institutional investors. The resultant impact was a sale of dollar denominated securities by investors that was also partly influenced by expectations of large-scale redemptions by the Central Bank of China. China’s central bank liquidated about $6.6 billion during the period.

They said during the period, Indian investors including the RBI, reshuffled portfolios away from dollar denominated securities into cash balances with multilateral institutions, other central banks (Bank of England, European Central Bank and Bank of Japan) and foreign commercial banks and investments in European government securities.

The shifts were evident from the falling holdings of US treasuries despite the rise in external reserves by $4.103 billion in May over April to $201 billion.