Bond yields spike as China questions USA treasuries

Postado Janeiro 14, 2018

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. A spokesperson for the State Administration of Foreign Exchange (SAFE) said in a statement published on its Chinese website, that the "news may quote the wrong source of information, or it may be fake news".

"We are far more inclined to see a move by SAFE, if confirmed, as a conventional investment decision", Eurasia Group said.

"Gold traders confirm that it was because the Government announced in advance that it was planning to sell such a large quantity of gold that the markets became depressed", The Telegraph reported then-shadow secretary to the Treasury Philip Hammond as saying in 2009.

A fire sale would also hit the value of China's vast Treasury holdings and may even end up weakening the yuan against the dollar, experts say.

Why would China dump USA debt? "I don't think we're headed for investment Armageddon".

The dollar fell against other currencies on Wednesday after a report that China may slow or halt its US treasury purchases, with the greenback falling more than 1% against the Japanese yen. China regularly assesses its strategy for investing reserves, and it isn't clear whether the officials' recommendations have been adopted.

The country is also the biggest foreign holder of USA government debt, with US$1.19 trillion in Treasuries as of October 2017, according to data from the Treasury Department.

China had $1.19 trillion in Treasuries as of October 2017, data from the Treasury Department show.

"If China ceases to be a net purchaser of US Treasuries, this is unlikely to have a significant impact on the overall yield curve unless China divests a large share of its total holdings in a short time period", said Rajiv Biswas, Singaporebased chief Asia-Pacific economist at IHS Markit. "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".

In order for bond yields to move higher, bond prices would have to fall as the "coupon" interest payment is fixed at the point when new bonds are issued and can not be changed to compensate for higher (better) base rates.

Some market experts speculate that China might want to send a message to President Trump over trade.

In 2016, China's treasury holding tumbled US$187.7 billion when the country was briefly dethroned by Japan as the top holder of United States government debt, as China's central bank dipped into its reserve to defend the ailing yuan. On Wednesday, the yield was trading around the highest level since March a year ago. A steady exchange rate suggests limited pressure on Chinese authorities to add Treasuries as part of intervening in currency markets.