According to the latest reports from the Financial Times China's State Administration of Foreign Exchange (Safe), Chinese official foreign exchange manager, is still buying record amounts of U.S. government bonds, in spite of Beijing's increasingly vocal fear of a dollar collapse. The story on the paper’s website cited Chinese and western officials in Beijing as saying China was caught in a "dollar trap."

There is little choice for China and the only thinkable option for it is to keep pouring the bulk of its growing reserves into U.S. Treasuries, which remains the only market big enough and liquid enough to support its huge purchases.

"The FT article probably helped boost the confidence of Treasuries holders who were anxious about potential selling by other players amid worries of a possible U.S. downgrade," said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC.

Citing the sources familiar with the situation FT said that Safe has not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to U.S. Treasury securities. The FT quoted the adviser as saying Safe traders were "very negative" on sterling because of expectations of renewed weakness of the UK currency but Safe was neutral on the euro and bullish on the Australian dollar.