China says no plan to reduce US Treasury purchases

China says no plan to reduce US Treasury purchases

The market for USA government bonds is becoming less attractive relative to other assets, and trade tensions with the US may provide a reason to slow or stop buying American debt, the thinking of these officials goes, according to the people, who asked not to be named as they're not allowed to discuss the matter publicly. "Investments in U.S. Treasuries is managed in a professional way according to market conditions and investment needs".

China's State Administration of Foreign Exchange (SAFE) released a statement on the topic of China considering a slowdown or halt of purchases of U.S. Treasury bonds as incorrect information. While China has about a fifth of all foreign-held US debt at $1.2 trillion, making it the largest single holder, it's not clear how much of a sustained impact a Chinese retreat would have on USA borrowing costs.

Bond veteran Bill Gross says a bear market has begun, read about that here. For China, trade tensions with the USA may also provide a reason to slow or stop buying American debt. It isn't clear whether the officials' recommendations have been adopted.

For most of previous year, China was adding to its USA sovereign debt holdings, monthly Treasury Department data show. "It depends on how disruptive Trump's measures are on trade, as to how much incentive there will be for China to show it can also hurt the U.S".

China says no plan to reduce US Treasury purchases
China says no plan to reduce US Treasury purchases

The move also comes at a particularly delicate time when the Fed is unwinding its balance sheet into an environment of rising supply.

Market News reported Thursday that China's restated objective of diversifying the makeup of its foreign exchange stockpiles can be seen as an admission that it is cutting back on U.S. Treasury purchases, citing an unnamed senior official at the People's Bank of China. If China considers halting their purchases of USA government bonds, that would amount to more quantitative tightening.

The dollar moved sharply lower on this morning's news and the euro jumped as it's easy to assume that adding EUR debt is likely to be the favored alternative when it comes to shifting the composition of the war chest.

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