Chinese banks offer dollar deposits near 4% while boosting Treasury purchases

Chinese banks have recently been buying U.S. Treasuries after raising dollar deposit rates for customers, a shift driven by increased onshore dollar funding availability and a lack of comparable yields in China’s domestic bond market. Since major Chinese state banks keep most dollar deposit rates capped, some deals for larger balances have exceeded 3% and, at select smaller or foreign lenders, approached 4%, encouraging customers to place dollars with banks that can then earn on Treasury holdings. The purchases fit a pattern where bank-driven dollar deposit “scarcity” pricing leads banks to deploy funds into the most liquid dollar assets, helping manage their asset-liability match while reducing the need for banks to convert yuan into dollars directly. Reuters notes the move may slow gains in the yuan, though it is not clear whether the scale is large enough to materially affect U.S. Treasury yields. Market analysts add that bank-driven demand is often visible earlier through deposit pricing and trading plumbing (especially USD-CNY) than through official foreign holdings data, and its persistence will depend on whether dollar funding conditions continue. Overall, the development points to a structural front-end bid for Treasuries linked to Chinese onshore dollar liquidity rather than a direct comment on U.S. rate policy.