China rebuffs report it plans to halt United States treasury purchases


The Bloomberg News report had lifted yields on the 10-year government bond to a 10-month high on Wednesday.

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

Why would China dump US debt? It said investments in Treasuries are decided by market conditions.

It remains the world's largest foreign holder of U.S. government debt, according to the U.S. Treasury Department.

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

"China's showing that they have power in the relationship, as anyone who's a buyer of U.S. Treasuries does", said Eric Stein, co-director of global fixed income at Eaton Vance in Boston.

A possible slow-down or halt to China purchasing US Treasury yields could have significant repercussions. "I don't think that's worked out so poorly for the U.S".

The dollar nursed its losses against the yen on Thursday, having suffered its biggest one-day drop in almost eight months following a report that China was ready to slow or halt its purchases of U.S. Treasuries. In short, the USA 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. The debt is becoming less attractive compared with other assets and trade tensions with the US may provide a reason for the shift, the thinking of the officials goes, according to the people. China regularly assesses its strategy for investing reserves, and it isn't clear whether the officials' recommendations have been adopted.

"We don't see a material impact on the United States dollars, and our view is for further USD depreciation as the global economy picks up and "other" central banks look toward tightening their monetary policies", Grace and Haddad say.

Yields slipped and bond prices clawed back their earlier losses after a solid 30-year bond auction.

However, Innes said the uncertainty over China's stance could potentially dampen investors' risk appetite, while the dollar would likely face headwinds against the yen due to speculation about the Bank of Japan's future exit from its massive stimulus policy.

In the eyes of some, Chinese officials may be trying to send a message that they have leverage with President Trump talking tough on trade.

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

"If the PBOC were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserve would fall".

Brent has gained 5 percent since the beginning of the year, picking up from its late-year surge.

"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.