China is prepared to increase its holdings of U.S. Treasuries under the right circumstances, as officials judge the assets are becoming more attractive than other sovereign debt and as the yuan stabilizes, according to people familiar with the matter. Treasuries rose, driving yields to the lowest since November.

The people didn’t specify the exact circumstances for continuing a run of purchases that has extended to two months through March, after reductions in all but one of the previous eight months. The nation has maintained the trend, said the people, who asked not to be identified because they aren’t authorized to comment on the matter publicly. The yuan has climbed more than 2 percent against the dollar this year, after plunging 6.5 percent in 2016 in its biggest decline in more than two decades.

While China reduced its ownership of Treasuries last year by the most in data going back to 2000 as it sought to defend the yuan, it has since changed strategy and added to its holdings in the two months through March. Policy makers have also recently signaled support for the currency, with a senior central bank official saying Tuesday that the nation is looking to promote yuan globalization and the government announcing on May 26 that it’s considering changes to the currency’s fixing mechanism to reduce volatility.

“When the yuan appreciates, China has the opportunity of building up its foreign reserves as the market has been concerned about the reduction of the reserves,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “Buying U.S. bonds will help boost confidence, as officials want to show that any anxiety about yuan weakness or devaluation was excessive. They don’t want the exchange rate to appreciate or depreciate in a large magnitude before the Communist Party congress later this year.”

In March, China increased its holdings of U.S. government bonds, notes and bills by $27.9 billion to $1.09 trillion, the latest data show. Adding a $3.7 billion rise in Belgium’s ownership, which is often seen as a home to China’s custodial accounts, the total increase was the biggest since 2014. The Asian nation’s foreign-exchange reserves probably climbed for the fourth month in a row in May, according to a Bloomberg survey before data due on Wednesday. The stockpile shrank $320 billion last year.

Demand Shift

China’s shift to buyer of Treasuries coincides with a four-month rally that’s reversed much of the selloff triggered by the U.S. election in November. Investors have piled back into bonds on fading expectations for quicker economic growth and inflation. In trading Tuesday, the 10-year yield dropped as much as 5 basis points to 2.13 percent, the lowest since Nov. 10. The maturity yielded about 1.7 percent a year ago.

Signs of renewed appetite from the second-biggest foreign owner after Japan may help cushion the $14 trillion Treasuries market as the Federal Reserve debates unwinding its massive bond portfolio.

“I don’t think it’s a reason to buy Treasuries right away, but it does increase the chances that China will continue to add to their holdings for the rest of the year,” Anthony Cronin, who trades Treasuries for SocGen in London, said in an email. That buying “may pick up some of the slack if/when the Fed decides to let some of their holdings run off.”

The Fed is widely expected to raise borrowing costs next week, narrowing the rate gap between China and the U.S. and making American assets more attractive. China’s Communist Party will hold a twice-a-decade leadership transition this fall.

The PBOC redirected a request for comment to the State Administration of Foreign Exchange, which didn’t immediately reply to a fax seeking comment.