China rebuffs report it plans to halt United States treasury purchases
00:04, Jan 14, 2018
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Last night USA treasury 10-year yields jumped 4 points to 2.59 per cent, before reversing following an unconfirmed Bloombergreport that China was considering slowing or halting its purchases of U.S. treasury bonds.
The yield on USA 10-year treasuries hit 2.57% overnight, its highest level in 10 months, prompting fixed income guru Bill Gross to declare a "bond bear market".
The decision is based on the fact that other investments may offer better returns, but also on the mounting trade tensions between Beijing and Washington.
Asian shares were weaker on Thursday in a follow-through from Wall Street but comments in the mid-Asian day that China is not looking to trim US Treasury purchases outside of normal market operations changed the tone.
The China report weakened the dollar, which was last down 0.2 percent, while safe-haven commodity gold jumped to its highest in four months.
Treasury yields are rising and bond-related exchange traded funds are falling after the Bank of Japan revealed its intention to scale back its monthly bond purchases Tuesday and Chinese officials recommended slowing USA treasury purchases Wednesday.
Both of these things would be bad for the US economy and have consequences for global financial markets given the Dollar's status as the global reserve currency and the US Treasury yield's status as the risk-free-rate in chief.
The US dollar is under strong sales pressure after the Bloomberg agency said the Chinese authorities would reduce or even stop buying US Treasuries, said the BNR.
All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank's $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.
Global stocks stabilized Thursday after a tumble the day before that was triggered by reports, later rejected, that China may slow its massive purchases of USA government bonds. The report cited two unnamed government sources.
The fear is that, at a time when the Federal Reserve has started reducing its holdings of USA debt (coupled with news that Japan is reducing its Treasury purchases and China might follow suit), there will be less demand for US debt. "This positive relationship exists because many central banks intervene to slow the appreciation of their exchange rates when the Dollars depreciates", Commonwealth's strategists note.
United States inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening.
The forex reserves investment in US Treasury bonds is a market activity, with investment professionally managed according to market conditions and investment needs, it said.
The US government bond market has repeatedly defied negative forecasts and last year the 10-year yield hit 2.63 per cent after hopes began circulating that President Donald Trump would turbocharge the US economy. That's just how markets work.
'While it seemed to come as a surprise, it's worth noting that the absolute purchase level was still within the Bank of Japan's target range of purchases, ' he said. Though the Fed raised rates three times a year ago, borrowing costs remain pretty low by historic measures.
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