Dollar bruised by worries over China's stance on USA bonds

Lloyd Doyle
January 14, 2018

Senior Chinese government officials have recommended slowing or halting purchases of Treasuries, in part given trade tensions with the US, according to people familiar with the matter cited by Bloomberg News Wednesday - news that wound up having little lasting impact on trading as yields ended little changed after spiking to the highest since March.

Between July 1999 and March 2002 the United Kingdom government sold 395 tonnes of gold at a series of auctions only before doing so, the Labour Party's then-Chancellor Gordon Brown made details of the forthcoming sales public.

China wants its own currency, the yuan, pegged to the dollar.

"We think this story could be quoting a mistaken source or it could also be a piece of fake news", the State Administration of Foreign Exchange said in a statement on its website.

A forthcoming decision from Washington over whether to impose sanctions against China for its trade practices and alleged failure to enforce global sanctions against North Korea may also have been at play.

Bloomberg reported that Chinese authorities were considering slowing or stopping the purchase of US Treasury debt, but China shot it down as "fake news".

As of the end of October, China held $1.19 trillion in U.S. Treasurys.


Other experts dismiss the idea that China would use bonds to play politics. The sentiment was already fragile earlier on Wednesday ahead of an issue of 10-year notes by the Treasury and a glut of supply from Europe.

Globally, bonds markets had been spooked by the Bank of Japan's routine announcement on Tuesday of a reduction in purchases of longer-tenor bonds and a jump in oil prices on top of the report about China's investment in USA bonds. So too could a long-established trend that has seen the world's central banks seeking to diversify their foreign exchange reserves away from the US Dollar.

Trading after the China news shows investors didn't exactly storm the exits.

That spooked investors anxious that sharp swings in China's massive holdings of US Treasuries would trigger a selloff in bond and equity markets globally. "Doubts about (U.S. bonds) allure should not be overblown as threat of imminent dumping".

Following the market's movement, bond veteran Gross, who is portfolio manager of the Janus Henderson Global Unconstrained Bond and Total Return strategies and a member of the global macro fixed income leadership team, took to Twitter on Tuesday to say "bond bear market confirmed".

Why would China dump US debt? That's just how markets work.

Therein lies the rub about calling for doomsday in this market: History has proven time and again that yields rise and fall in fits and starts. "We don't rule out the possibility that Beijing will seek to increase yuan flexibility, but the shift in policy will likely be modest and highly dependent on market conditions".

Other reports by Iphone Fresh

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