Dollar regains some poise after China dismisses USA bonds report

14 January, 2018, 12:37 | Author: Brenda Erickson
  • Stock Rally Tested by Rise in Yields; Yen Climbs: Markets Wrap

The Bloomberg News report had lifted yields on the 10-year government bond to a 10-month high on Wednesday.

"China has been diversifying its forex reserves investments and its investments in US Treasuries is market-driven", SAFE said on its website.

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. China's State Administration of Foreign Exchange didn't immediately reply to a fax seeking comment on the matter.

The speculation that China may reduce its buying in USA bonds helped to underpin the euro, the most obvious alternative to the dollar for assets.

U.S. Treasury yields fell after China disputed a report that its government officials had recommended the country slow or halt its purchases of the U.S. bonds.

"We go into the year on the proviso that the while the dollar may have become a little oversold and due a moderate correction, we favour the dollar structural depreciation to extend", Jeremy Stretch, currency strategist at London-based CIBC Capital Markets, told the Reuters Global Markets Forum. After the Wen remarks, made at the close of the annual gathering of China's legislature, President Barack Obama assured America's creditors that USA government debt was safe and the nation's finances were sound.

To some experts, a move by China to pull back on its bond-buying could simply be seen as responsible-reserve management by one of the world's richest central banks. The holdings increased by 6.6% from a year earlier, but were down from a 12-month peak of $1.2 trillion in August.

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"The Chinese are applying pressure to the Treasury market just as the Fed is about to step away from being the buyer of last resort", said Boris Schlossberg, managing director of FX strategy at BK Asset Management in NY.

China's foreign-exchange reserves of $3.1 trillion are the world's largest, though it wasn't clear whether the recommendations have been adopted.

Some investors said that the market could take the China news in its stride considering the nation's net purchases of Treasuries have already slowed "significantly".

"The dollar was already notably weak ahead of today, despite the fact that USA data remained strong and yields continued to rise", he said.

Beijing is the biggest holder of US debt and the Bloomberg report was seen by some as a veiled threat to US President Donald Trump following his tough talk on global trade and China's "unfair trade practices". The benchmark 10-year yield touched 2.597 percent, its loftiest level since March, according to Reuters data.

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

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