China weighs halt to purchases of United States debt securities

China weighs halt to purchases of United States debt securities

China owns around $1.2 trillion in US Treasuries in a government debt market that amounts to $14.5-trillion.

The market for USA government bonds is becoming less attractive relative to other assets, and trade tensions with the US may provide a reason to slow or stop buying American debt, the thinking of these officials goes, according to the people, who asked not to be named as they're not allowed to discuss the matter publicly.

Analysts say the market for United States government bonds is becoming less attractive relative to other assets.

China added to jitters on Wednesday as Bloomberg News reported that government officials are discussing whether to slow or halt US bond purchases as part of a review of its foreign-exchange holdings. For China, trade tensions with the U.S. may also provide a reason to slow or stop buying American debt. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.

China's foreign exchange reserves, the world's largest, had climbed to $3.14 trillion in December 2017. It isn't clear whether the officials' recommendations have been adopted.

"Given possible US protectionist measures, it makes sense for China to preemptively flag that it holds some important cards, which could restrain the USA actions", Alan Ruskin, global co-head of foreign exchange research at Deutsche Bank, said in a note.

The move also comes at a particularly delicate time when the Fed is unwinding its balance sheet into an environment of rising supply.

Any reduction in Chinese purchases would come just as the US prepares to boost its supply of debt.

Some analysts said on Wednesday that there has been an implicit threat from China to US President Donald Trump, after his strict standpoint in the global trade topic and his accusations of China of corrupt practices.

The regulator also defended the professional management and administration that China undertook with the investment of foreign reserves and said it was carried out in accordance with the market situation.

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