Beijing weighs slowing, halting purchases of US Treasuries


Balancing a retirement and college savings can be overwhelming.

China added to bond investors' jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.

China wouldn't let geopolitical issues drive decisions on foreign exchange holdings, the Eurasia Group said, after Bloomberg News reported officials had recommended scaling back USA government debt purchases. The report suggests that China feels US debt is becoming less attractive when compared to other types of investments. 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.

"You could be long dollar-yen and you could be long USA treasuries and you were getting yield on both sides of that".

Low interest rates, of course, have been a big driver of the stock market rally the past nine years and has also provided a lift to the economy, as middle-class Americans have benefited from lower borrowing costs.

China holds the world's largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. Japan was second with USA bond holdings worth $1.09 trillion. Instead of just stopping its purchases of U.S. debt, it could start selling some of the paper it has.

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

But Erlam says it is too "early to speculate" on the likelihood that China will "suddenly" reduce its holdings. Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day. It finished unchanged at 2.55%.

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Against a basket of currencies, the dollar was down 0.15 percent. "That's not helpful to a bond market that's already under pressure".

"You already had this backdrop of rising rates and people are getting nervous", says Boris Rjavinski, senior interest rate strategist at Wells Fargo Securities in NY.

And China could get even tougher.

But the Eurasia Group analysts said that China had more targeted tools to pressure the US and retaliate against trade measures.

"This happens every time rates go up", Paulsen explains.

Is China really thinking of slowing or halting bond sales?

"I think the Chinese will contribute to the removal of liquidity from the US bond market", said Michael Shaoul, chairman and CEO of Marketfield Asset Management.