Gold Up on Report China May Slow US Treasury Buys

Ivan Schwartz
January 11, 2018

"This change of dynamic suggests we may be in the midst of a regime change in the market where the dollar actually falls as USA yields rise on fears of deficit expansion and debasement of the currency", said.

The U.S. dollar fell against a basket of major currencies on Wednesday after a report that China was ready to slow or halt its U.S. treasury purchases, with the greenback on track to post its biggest single-day drop against the Japanese yen in seven weeks.

The report also notes that Chinese officials think US debt is becoming less attractive compared with other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases.

The sources cited by Bloomberg said the relative attractiveness of the US Treasury market had declined. "A significant change in policy could put considerable upside pressure on US yields".

Any reduction in Chinese purchases would come just as the U.S. prepares to boost its supply of debt. What's more, he adds, it is likely that China would tread carefully if it does opt to sell U.S. Treasuries so as not to "destabilize the markets".

U.S. Treasury yields jumped to 10-month highs on Wednesday. It finished unchanged at 2.55%. The dollar also dropped against most currencies and gold rose.

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Interest rates had already been rising to start 2018, as investors begin to price in prospects for faster USA growth, more interest rate hikes from the Federal Reserve and rising inflation pressures, in part due to rising wages as the job market tightens further. The strategies discussed in the review don't concern daily purchases and sales, said the people.

And China could get even tougher.

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".

"This happens every time rates go up", Paulsen explains.

The key question is whether it is in China's best interest to sell U.S. Treasuries as an opening salvo in what could become a trade war, analysts say.

"I think the Chinese will contribute to the removal of liquidity from the US bond market", said Michael Shaoul, chairman and CEO of Marketfield Asset Management.

Other reports by GizPress

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