News Worms
News Worms


China Weighs Slowing or Halting Purchases of US Treasuries

China Weighs Slowing or Halting Purchases of US Treasuries

The yield on 10-year U.S. Treasury hit a 10-month high of 2.59 percent in European trade and was up 4 basis points on the day, pushing the dollar to a six-week low against the Japanese yen. It isn't clear whether the officials' recommendations have been adopted.

Bloomberg News reported Wednesday, citing people familiar with the matter, that officials in Beijing have recommended the Chinese government lower - or even stop - its buying of US sovereign debt.

The market for US government bonds has become less attractive relative to other assets, including sovereign debt issued by other countries, according to the Chinese review.

Malpass, who heads global affairs for Treasury, also reiterated his concerns about China's emphasis on its state-owned enterprises and government subsidies that distort capital allocation.

The People's Bank of China would trigger a selloff if market participants believed it has truly soured on Treasuries, which would cause the value of its own reserves to fall.

The reasons include Chinese officials thinking U.S. debt is becoming less attractive compared to other assets, and trade tensions between the two countries. The strategies discussed in the review don't concern daily purchases and sales, said the people. The two economic powerhouses have long maintained a debt-fueled trade policy, but with the USA debt expected to increase further, Beijing may be losing its appetite for Treasurys.

The $14 trillion Treasury market has been roiled in the past 48 hours.

"The US Treasury market is a deep, robust market within the world and so we are confident that our economy, with the economy strengthening, that it will remain a deep, robust market", Mr Malpass told reporters. Instead of just stopping its purchases of U.S. debt, it could start selling some of the paper it has. The Treasury Department said in its most recent quarterly refunding announcement in November that borrowing needs will increase as the Federal Reserve reduces its balance sheet and as fiscal deficits look set to widen.

Rising Treasury yields can pressure prices for Gold, but USD's slide helped Gold shrug off any impact.

"It's a complicated chess game as with everything the Chinese do", said Charles Wyplosz, a professor of global economics at the Graduate Institute of worldwide and Development Studies in Geneva.

A senior United States official downplayed the impact of possible scaledown of Chinese purchases of Treasuries.

Market-watchers say unrest in key producer Iran could dent the country s capacity, while others point out that any suppression of protests by Tehran could also lead Trump to reimpose export sanctions. The benchmark 10-year yield touched 2.597 percent, its loftiest level since March, according to Reuters data.

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