Quick Take: Chinese Regulator Denies Curbing US Treasury Purchases

Quick Take: Chinese Regulator Denies Curbing US Treasury Purchases

Bloomberg News reported on Wednesday that Chinese officials reviewing the country's vast foreign exchange holdings had recommended slowing or halting purchases of US Treasury bonds amid a less attractive market for them and rising US-China trade tensions.

Benchmark 10-year notes last fell 10/32 in price to yield 2.5825pc, from 2.546pc late on Tuesday. "25-year long-term trend lines broken in 5yr and 10yr maturity Treasuries".

"If we posit that in September or October much of this doesn't go away but it stops increasing, then the pressure for slightly higher yields is probably with us", he said. In 2017, the central bank also hiked rates three times.

The amount of Treasuries that foreign central banks hold in custody with the Fed and the movement of the yuan point in that direction, in view of some analysts. In short, the United States government sells investors their debt at a preferential rate for them, and as part of a risk-free investment for the buyer, in this case, the Chinese government.

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The report sent US 10-year Treasury yields to 10-month highs and dented the dollar on Wednesday, which slid almost 1.1 percent on trading platform EBS, its biggest one-day percentage fall versus the yen since last May.

Ant Financial is an affiliate of Chinese e-commerce giant Alibaba Group Holding, which owns the South China Morning Post.

When China buys U.S. bonds it is effectively bank-rolling the United States.

Why would China dump USA debt?

The Gordon Brown example highlights why Commonwealth Bank of Australia is saying Wednesday's reports over China and its US Treasury holdings are unreliable. This brings stability and has been common practice for many countries ever since the Bretton Woods Conference in 1944 aimed at regulating global monetary and financial order.

"This change of dynamic suggests we may be in the midst of a regime change in the market where the dollar actually falls as USA yields rise on fears of deficit expansion and debasement of the currency", said.

"A lot of the speculative accounts started to pile into the flattening trade; there was this bandwagon effect", Kohli said.

Then as now, analysts say that while America's biggest foreign creditor has the power to jolt USA bond markets, wide-scale selling by China is unlikely given that it has few alternatives to invest its $3.1 trillion in foreign-currency reserves, the world's largest stash.

"It could be an intentional leak to warn the Trump Administration that China has some levers to pull in responding to any punitive protectionist measures on trade", said Aidan Yao, senior emerging Asia economist at AXA Investment Managers Asia.

While Jens Nordvig of Exante Data added: "It has to be seen as a prelude to possible trade tension, without being a very explicit threat".

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