Decline of currency reserves turned around by US Treasury bonds

China's foreign exchange reserves rose to $3.112 trillion in June, bolstered by an increase in the value of its US Treasury holdings, which ended a two-month decline, the central bank said on Monday.

Analysts said the scale of reserves will remain stable and could rise slightly in the coming months given fluctuations in global financial markets that may push up the value of the Treasury.

The reserves increased by $1.51 billion last month, or 0.05 percent, compared with a drop of $14.23 billion in May, the central bank data showed.

The State Administration of Foreign Exchange, the nation's top foreign exchange regulator, said in a statement on Monday that the slight rise in foreign exchange reserves in June was mainly because of "comprehensive factors", including depreciation of other currencies against the US dollar and asset price changes. It did not provide details.

"The Chinese foreign exchange market generally remained stable and the country basically achieved a balance of payments equilibrium," the administration said.

"US Treasury yields were down in June, so valuation factors were conducive to an increase in foreign reserves," E Yongjian, chief financial analyst at Bank of Communications, said in a research note.

Although emerging markets are facing pressure from capital outflows and currency depreciation as Sino-US trade friction has escalated, sound and stable economic fundamentals in China have helped stabilize market expectations and cross-border capital flows remained stable, according to the SAFE statement.

"Generally, market sentiment and cross-border capital flows were stable, despite some vulnerabilities in global capital markets," E said.

The possibility of large-scale capital outflows or any sharp depreciation of the yuan is slim in the near future given the stable condition of the Chinese economy, E added.

Wen Bin, a researcher at China Minsheng Bank, said the nation's foreign exchange reserves might continue to increase slightly in the coming months as US Treasury prices may continue to rise given that more uncertainties could emerge in global financial markets.