Dollar regains some poise after China dismisses USA bonds report

Dollar regains some poise after China dismisses USA bonds report

Dollar regains some poise after China dismisses USA bonds report

The report sparked a selloff in USA bonds that sent 10-year Treasury yields (http://www.marketwatch.com/story/10-year-yield-jumps-close-to-26-after-report-china-may-end-us-bond-buying-2018-01-10) higher, close to 2.6% in Wednesday's action. However, market participants suggested it would take time to verify any slowdown in Chinese purchases of U.S. Treasurys as new data emerges in the coming months.

Bloomberg, citing unidentified sources, reported Chinese authorities were considering slowing or halting purchases of Treasuries and said they might cite trade tensions as a reason.

China's foreign exchange reserves - the world's largest - rose to US$3.14tn in December.

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

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

Market sentiment seems tilted toward the dollar's downside, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. "I don't think we're headed for investment Armageddon".

China's foreign exchange watchdog has denied on Thursday that Beijing was considering suspending or slowing down its purchase of US Treasuries, refuting a news report the previous day which has weighed on US government bonds and the US dollar.

Nevertheless, the mere thought that China might choose to unload some of its Treasuries fed broader concerns about how the markets react as central banks in the United States, Japan and Europe normalize policies adopted to prop up faltering economies.

Later that month, Hu Xiaolian, director of China's SAFE, said Treasuries form "an important element of China's investment strategy for its foreign-currency reserves".

Benchmark 10-year notes last fell 10/32 in price to yield 2.5825pc, from 2.546pc late on Tuesday.

China owned at least $1.2 trillion of Treasury debt as of October, according to US government data.

Australian 10-year bonds rose 2.1 points to 2.74 per cent.

"If China ceases to be a net purchaser of US 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, Singaporebased chief Asia-Pacific economist at IHS Markit.

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.

In 2016, China's treasury holding tumbled US$187.7 billion when the country was briefly dethroned by Japan as the top holder of USA government debt, as China's central bank dipped into its reserve to defend the ailing yuan. The consensus among analysts surveyed by Bloomberg is for little change in the yuan by the end of 2018, from its current level of around 6.50 per dollar. "That's not helpful to a bond market that's already under pressure".

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