China Weighs Slowing or Halting Purchases of US Treasuries

Bond yields hit multi-month highs on report China may slow US bond purchases

Bond yields hit multi-month highs on report China may slow US bond purchases

China holds $3.1 trillion in foreign exchange reserves, making it the world's largest holder. It isn't clear whether the officials' recommendations have been adopted.

The report helped push yields of US Treasuries to multi-month highs and caused the US dollar to fall.

U.S. Treasury yields jumped to 10-month highs on Wednesday after Bloomberg News reported that Chinese officials have recommended the country slow down or halt its purchases of the U.S. bonds.

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

A top Treasury official signaled confidence in the US government debt market, which at $14.5 trillion is the world's largest. "The market is pricing in this possibility, but we still don't have much have detail on this".

Bond veteran Bill Gross says a bear market has begun, read about that here.

Apart from the directly-linked sell-off in Treasuries and the consequent jump in yields to around 2.58%, the U.S. dollar is falling across the board.

A reading on China's money supply is expected in coming days. As long as the country runs a massive trade surplus with the US, it will find itself with a huge hoard of dollars looking for a home.

"If China ceases to be a net purchaser of U.S. Treasuries, this is unlikely to have a significant impact on the overall yield curve unless China divests a large share of its total holdings in a short time period", said Rajiv Biswas, Singapore-based chief Asia-Pacific economist at IHS Markit.

The yield on 10-year Treasuries rose 1 basis point, to 2.56 percent, after jumping seven basis points Tuesday.

Moreover, Chinese net purchases of Treasuries have already slowed significantly so the impact on United States dollars will likely be less than if the report had been totally unexpected.

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