China: 'We will not halt USA bond purchases'

  • China: 'We will not halt USA bond purchases'

China: 'We will not halt USA bond purchases'

Global stocks stabilized Thursday after a tumble the day before that was triggered by reports, later rejected, that China may slow its massive purchases of US government bonds.

Markets took a turn south following a report suggesting the Chinese authorities now view U.S. government bonds as weak.

"We think this story could be quoting a mistaken source or it could also be a piece of fake news", the State Administration of Foreign Exchange said in a statement on its website.

China owns nearly $1.2 trillion of US government debt, more than double the level from a decade ago, with most of the buildup coming as the nation boosted foreign-exchange reserves to help offset a strengthening yuan.

"The bear market that I'm talking about is a mild one", Gross said in a Bloomberg Radio interview.

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 dollar may fall to around ¥110" in the days to come, the official said. "It's challenging to find any real substantial alternatives", with China earning dollars - the flip side of the USA current account deficit.

China's foreign exchange regulator on Thursday dismissed a media report that said the country was stepping back purchases of U.S. Treasurys. Trump is facing decision time as deadlines approach over whether to slap tariffs on imports from steel and aluminum to solar panels, which would be clearly aimed at China. In short, the U.S. government sells investors their debt at a preferential rate for them, and as part of a risk-free investment for the buyer, in this case, the Chinese government.

The country is also the biggest foreign holder of United States government debt, with US$1.19 trillion in Treasuries as of October 2017, according to data from the Treasury Department.

As of the end of October, China held $1.19 trillion in U.S. Treasurys. "We don't rule out the possibility that Beijing will seek to increase yuan flexibility, but the shift in policy will likely be modest and highly dependent on market conditions".

Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day.

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.

"It's pretty significant. That takes an important buyer out of the market at the same time you're taking the most important buyer out of the market - the US Fed", said Bruce Bittles, chief investment strategists at Robert W Baird & Co in Sarasota, Florida.

Brent has gained 5 percent since the beginning of the year, picking up from its late-year surge.

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