Forex- Dollar Falls As China Considers Slowing US Bond Purchases
Forex- Dollar Falls As China Considers Slowing US Bond Purchases
Janus Henderson's Bill Gross
14 January, 2018, 17:14
"I think the Chinese will contribute to the removal of liquidity from the USA bond market", said Michael Shaoul, chairman and CEO of Marketfield Asset Management. 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.
China, the biggest buyer of US sovereign bonds, could be slowing down or even halting its purchases, according to a report.
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.
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.
"China's showing that they have power in the relationship, as anyone who's a buyer of U.S. Treasuries does", said Eric Stein, co-director of global fixed income at Eaton Vance in Boston. "I don't think we're headed for investment Armageddon".
"China's rising foreign exchange reserves, and our view of Dollars depreciation, suggests China's purchases of US treasuries will either pick up, or more likely, remain stable", say Grace and Haddad.
The strategists question the reliability of the report because, if China really were about to stop buying US Treasuries and made a decision to telegraph it beforehand, then it would hurt itself by driving down the value of the bonds already held on the PBOC's balance sheet.
The country is also the biggest foreign holder of USA government debt, with US$1.19 trillion in Treasuries as of October 2017, according to data from the Treasury Department.
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"If the PBOC were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserve would fall".
The stakes may be higher now as tensions with the USA have been building since the election of President Donald Trump, who's been critical of the American trade deficit with China and other countries.
Australian 10-year bonds rose 2.1 points to 2.74 per cent.
Some market experts speculate that China might want to send a message to President Trump over trade. 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.
Janus Henderson's Bill Gross has Tweeted a "bond bear market has been confirmed" as the ten-year US Treasury yield climbed to the highest level in around ten months.
The bond market reacted negatively before recovering through the day and ending slightly up.
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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