China Won't Use Treasuries to Warn Trump, Eurasia Group Says

BOJ Governor Vacancy Cause Confusion In Market

BOJ Governor Vacancy Cause Confusion In Market

The yield on 10-year US Treasury hit a 10-month high, while the dollar slumped against a basket of currencies following the Bloomberg News report.

Investors worry that if China purchases fewer Treasuries, the US government will have to find alternative buyers.

China owns nearly $1.2 trillion of USA government debt, more than double the level from a decade ago, with most of the buildup coming as the nation boosted foreign-exchange reserves to help offset a strengthening yuan.

"It's certainly more of a hawkish tilt in the minutes", said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto. The increase came as the size of the US debt market more than tripled to $14.5 trillion.

But why does China hold so much U.S. debt?

But others said short sellers were squeezed out by the sudden downshift in yields prompted them to buy back, or "covering", the securities they had borrowed, juicing the late day rally. "I don't think that's worked out so poorly for the U.S". Trump is facing decision time as deadlines approach over whether to slap tariffs on imports from steel and aluminum to solar panels, which would be clearly aimed at China.

The report also notes that Chinese officials think US debt is becoming less attractive compared with other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases.

"But China is the largest buyer [of US Treasuries], what it says will deeply influence investors' sentiments". It is also the biggest foreign holder of US government debt, ahead of Japan, and held US$1.189tn worth of US Treasuries in October, according to US Treasury Department data. "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".

Australian 10-year bonds rose 2.1 points to 2.74 per cent.

US Treasuries later pared some of their losses and the 10-year yield stood at 2.555 per cent in early Asian trade.

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

ANLAYST'S TAKE: "Justifiably, Beijing's biggest worry is that the value of its USA bond holdings will be eroded substantially by rising inflation and supply", Mizuho Bank Ltd. said in a daily commentary. The consensus among analysts surveyed by Bloomberg is for little change in the yuan by the end of 2018, from its current level of around 6.50 per dollar.

But any attempts to use that power could hurt the dollar, damaging China's own United States holdings.

"With markets already dealing with supply indigestion, headlines regarding potentially lower Chinese demand for Treasuries are renewing bearish dynamics", said Michael Leister, a strategist at Commerzbank AG.

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