Dollar slips versus yen on report China may halt bond buys

Marcus Newton
January 14, 2018

Gold rose Wednesday, hitting its highest mark in 4 months, as the Dollars declines on a report that Chinese officials had recommended slowing or halting purchases of US Treasury securities, the Treasury market was flat to unchanged at its close Wednesday.

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The report triggered a volatile response in the U.S. Treasury market with U.S. 10-year Treasury yields spiking to a 10-month high.

The timing of this comes before his decision to potentially hit Beijing with aggressive trade sanctions this month, as a remedy for America's massive trade deficit with China. He said last year that 10-year yields persistently above 2.4 percent would signal a bear market, though added in an interview last week that even in such an environment, investors probably won't lose a lot of money.

Against a basket of currencies, the dollar was down 0.15 percent.

On Wednesday, Bloomberg, citing unidentified people familiar with the matter, said China found that USA bonds were becoming less attractive and that trade tensions with the US could provide a reason to stop buying American government paper. "There's no way on earth the Chinese stop buying US Treasuries", said Robert Pavlik, chief investment strategist, SlateStone Wealth in NY.

China very deliberately holds $1.2 trillion of United States debt and by doing so makes a relatively risk-free investment, while sending the USA a political message that they have a hold on U.S. life-lines, the flow of money into its veins.

But China, with its huge pile of USA treasuries, is unlikely to take any hasty decision that would destabilise the market as it would amount to commiting hara-kiri.

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Again, this was a report citing anonymous government sources. China's existing trade strain with the USA may also be a reason for slowing or stopping U.S. debt purchases, they say.

"We should have full confidence in the US Treasury debt market, its depth and capacity are very big", he said.

"This has been long expected but there was more formality in the minutes around how the bank will manage the forward guidance process as they exit unconventional policy", Schamotta said. China has total reserves of just over $3 trillion.

If central bank reserves are to be truly diversified, or bare any resemblance to the shape of the global economy, then reserves managers have to keep pace with this trend.

For his part, Jeffrey Gundlach, known on Wall Street as the "Bond King", said on an investor webcast on Tuesday that if the 10-year Treasury yield pushes above 2.63 percent, it will accelerate higher.

"To date, US inflation pressures have remain muted".

The 20-year yield fell 1.0 percent to 0.590 percent but 40-year bonds lagged the recovery, with their yield unchanged at 1.010 percent ahead of Friday's 40-year bond auction.

Speculation is the USA bond market isn't as attractive as it once was, and growing trade tensions between the two countries may be contributing factors to China's change in strategy, but Chinese officials are not commenting. The bear market was confirmed this week as rates on the 10-year passed 2.5 per cent, he tweeted on Tuesday.

Other reports by MaliBehiribAe

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