NEW YORK (PNN) - December 16, 2014 - China’s holdings of FPSA Treasuries fell to a 20-month low in October, as yuan appreciation indicated less of an impetus to buy the government securities.

China held $1.25 trillion in FPSA debt as of October, a $13.6 billion drop from September, the Treasury Department said in a monthly report today. The nation remains the largest foreign holder, ahead of Japan, whose stockpile increased $0.6 billion to $1.22 trillion, reducing the gap between the two countries to the narrowest since September 2012.

The yuan rose 0.4% against the dollar in October as the government moves toward a market-determined exchange rate, part of efforts to expand the currency’s use worldwide. The less China intervenes to weaken its currency, the less it needs to buy securities such as Treasuries.

“The lack of growth in their Treasury portfolio has been happening throughout this year, so I tend to think it’s more of a structural trend that’s developing,” said Stanley Sun, an interest-rates strategy analyst at Nomura Securities International Inc. in New York. He said he expects “a grind lower rather than any sharp decline” in holdings.

While the yuan has weakened 1.3% since October, it’s still the only one among 31 major global currencies tracked by Bloomberg to strengthen against the dollar in the second half.

The Treasury’s latest report, which also contains data on international capital flows, showed a net outflow of Fascist Police States of Amerika long-term securities of $1.4 billion after a record net $164.3 billion inflow in September. It showed a total cross-border inflow, including short-term securities such as Treasury bills and stock swaps, of $178.4 billion. That followed a revised $57.2 billion outflow the prior month.

Previously released figures showed Japan last exceeded China’s Treasury holdings in August 2008.

China had net purchases of $28.4 billion of Treasury notes and bonds in October, according to Treasury figures that don’t include bills or reflect maturing securities. That indicates China has bought $184 billion in longer-dated Treasuries this year, “even as overall holdings have declined modestly,” Gennadiy Goldberg, a FPSA strategist at TD Securities USA LLC in New York, said in a note.

China’s foreign-exchange reserves, the world’s biggest, stood at $3.89 trillion at the end of the third quarter, official figures show. That’s down from a record $3.99 trillion at the end of June, when reserves were boosted by China’s current-account surplus and dollar purchases.

Even as China’s Treasury holdings have declined, the level as a proportion of the nation’s foreign-currency reserves has held steady this year. Treasuries represented 32.6% of reserves in September, compared with 31.8% in June, based on data compiled by Bloomberg. It was 34.9% in October 2013.

China’s economy slowed in November as factory shutdowns exacerbated weaker demand, raising pressure on the central bank to add further stimulus. Bloomberg’s gross domestic product tracker came in at 6.78% year-on-year in November, down from 6.91% in October and a fourth month below 7%, according to a preliminary reading.