Is China dumping U.S. assets for euros?

A man holds a stack of euro notes at a bank in Guangzhou of Guangdong Province, China. Click chart for more Forex data.

NEW YORK (CNNMoney) -- America's number one creditor appears to be losing some appetite for U.S. government securities, according to Standard Chartered Bank.

In a report issued Tuesday, the bank argues that the Treasury Department's official system for tracking China's purchases of U.S. debt is 'misleading' because of the way it tracks transactions.

Often China will buy assets through brokers in London and Hong Kong and the Treasury International Capital data (TIC) is based on where the orders were booked so it doesn't fully capture all of China's purchases, said the report.

On top of that, Standard Chartered found that the gap between China's reserves and the amount of U.S. debt it was buying reached a record $150 billion this year, or 76% of China's reserves.

China's foreign exchange reserves expanded to $200 billion during the first four months of this year, with the bulk of it being used to buy European debt.

That's right, European debt. According to Standard Chartered, China has been a big buyer of AAA-rated bonds issued by the European Union's "bailout vehicle."

Chinese trade balance widens

The report estimates that China bought about $3.6 billion worth of top-rated bonds issued by the European Financial Stability Facility, which is backed by members of the European Union, and the European Financial Stability Mechanism.

"Even if Beijing were not concerned about the U.S. fiscal situation and/or the [U.S. dollar], the yields on offer in the [euro] market would likely be attractive enough for it to diversify into Europe at the margin," the report states.

Regardless, China is by far the biggest holder of U.S. debt.

The latest TIC report showed that China owned $1.15 trillion worth of Treasury securities at the end of April. That's up from $1.14 trillion at the end of March, but down from the begining of the year

"It is possible that China has found a new way to disguise its purchases of U.S. government issuance," the Standard Chartered report states. "But the more likely explanation is that China is diversifying away from U.S. assets at the margin -- buying proportionally less U.S. paper with its new [foreign exchange] reserves."

Chinese officials have publicly expressed concerns about the stability of its massive stockpile of dollar-denominated assets, saying the U.S. government's efforts to stimulate the domestic economy have undermined the dollar and the nation's fiscal deficits are unsustainable.

World's largest economies

The dollar index, a measure of the currency against its main trading partners, has tumbled from 80 in early January to about 75 on Tuesday.

Meanwhile, the yield on the benchmark 10-year Treasury note has been holding below 3% recently, down from around 3.7% in February. The yield on the 3-month Treasury bill, known as T-bills, has been bouncing around 0% over the past few months.