jh-siesta.com January 21, 2018

Dollar slips versus yen on report China may halt bond buys

13 January 2018, 12:58 | Nellie George

Stock Rally Tested by Rise in Yields; Yen Climbs: Markets Wrap

BOND REPORT: 10-year Treasury Yield Crosses 2.50% Mark, Highest Since March

National Australia Bank strategist Alex Stanley said global demand for US Treasuries was a major risk to watch, "but one should be wary of extrapolating reports on China demand into views that yields are poised for an imminent surge higher".

A report by Bloomberg News on Wednesday that Beijing was considering halting U.S. Treasury purchases hit stocks and sent U.S. bond yields to the highest levels in months. Yields rise when bonds are sold.

A report from Bloomberg suggesting that China may be looking to slow or halt purchases of USA government bonds rippled across the markets.

The dollar fell against other currencies on Wednesday after a report that China may slow or halt its USA treasury purchases, with the greenback falling more than 1% against the Japanese yen.

The State Administration of Foreign Exchange (SAFE) said on Thursday that the Bloomberg report had "cited a wrong source, or could be fake news". China is the largest foreign holder of U.S. Treasuries. USA crude CLc1 settled at $63.80, up 23 cents, the highest since December 2014.

"One thing that has been really important to China is that the Treasury market is so deep and so liquid", said Amar Reganti, a fixed-income strategist at GMO's asset-allocation group, and former deputy director of the Treasury's Office of Debt Management. "They sort of assumed that the BOJ would keep its foot in hard on the accelerator", said Michael Hewson, chief markets analyst at CMC Markets in London.

The reports come as an improvement in bilateral economic ties largely failed to materialize following Donald Trump's visit to Beijing in November.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ GRAPHIC-U.S. Bonds' Rollercoaster Day on Chinese Worries http://reut.rs/2DiJ0y6 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^.

The US administration is considering several new tariffs in the coming weeks, including broad restrictions on steel and aluminium imports and punitive actions against China arising from an investigation into Beijing's intellectual property practice.

Beijing's massive United States debt holdings are a bugbear for some USA politicians, who claim they give China too much leverage over Washington.

The Janus Henderson manager said his $2.2 billion Global Unconstrained Bond Fund had taken a short position on Treasuries, U.K. gilts and German Bunds. It said investments in Treasuries are decided by market conditions.

Brent crude prices hit $70 a barrel on signs of tightening crude stocks but settled off that level on Thursday, while a jump in energy shares helped lift USA stocks. China's then-Premier Wen Jiabao expressed concerns about the country's fiscal health. In a speech at Columbia University, he urged Washington to work harder to stabilize the dollar, warning that Japan "had the option of reducing Treasurys and increasing gold" within its portfolio. "It's challenging to find any real substantial alternatives", with China earning dollars - the flip side of the US current account deficit.

"If the PBOC were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserves would fall".

It would also spark increases in worldwide interest rates and threaten global growth, potentially hurting China's exports. "These include informal regulatory actions to deny market access to USA firms and exports".

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