Economy

Reports that China may halt U.S. government bond purchases may be incorrect

Reports that China may halt U.S. government bond purchases may be incorrect

"All of last year there was this fantastic correlation between USA 10-year yields and dollar-yen and people put on what is known as pairs trades", said Greg Anderson, global head of FX strategy at BMO Capital Markets in NY. As in 2009, the latest news fanning concern about China's appetite for USA borrowings comes at an inopportune time, with the Treasury set to ramp up issuance as the Federal Reserve is shrinking its balance sheet.

China has the world's biggest foreign reserves of about US$3.1 trillion by December, which rose slightly in 2017 because of a 6.7 per cent appreciation of the Chinese currency.

"It's hard to see how China would emerge from this scenario better off", said Mark Williams chief Asia economist at research firm Capital Economics.

And while 2018 has brought some telegraphed risks into sharper focus, nothing has rocked the foundation of the $14.5 trillion Treasuries market, said Aaron Kohli, an interest-rate strategist at BMO Capital Markets in NY. The strategies discussed in the review don't concern daily purchases and sales, said the people.

Any reduction in Chinese purchases would come just as the United States prepares to boost its supply of debt. "I don't think we're headed for investment Armageddon".

Bloomberg reported that Chinese authorities were considering slowing or stopping the purchase of US Treasury debt, but China shot it down as "fake news".

"But China is the largest buyer [of US Treasuries], what it says will deeply influence investors' sentiments".

Autostrade, dal 2018 via ai rincari
Anche a Imola aumenta lievemente la previsione d'incasso: dai 2 milioni e 755mila del 2017 ai 2 milioni e 856.500 del 2018. Ovviamente aumentano anche i pedaggi delle autostrade abruzzesi (13%), ma di questo ce ne siamo già occupati ampiamente.

All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank's $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan. The session high for the global benchmark was US$69.37, highest since May 2015.

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.

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.

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

The Gordon Brown example highlights why Commonwealth Bank of Australia is saying Wednesday's reports over China and its US Treasury holdings are unreliable.

In order for bond yields to move higher, bond prices would have to fall as the "coupon" interest payment is fixed at the point when new bonds are issued and can not be changed to compensate for higher (better) base rates.


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