Gold Up on Report China May Slow US Treasury Buys

Janus Henderson's Bill Gross

Japan's Nikkei finished 0.3 percent lower. The justice ministry has taken the sternest stance on digital currencies among South Korean ministries but other government agencies reportedly oppose an outright ban on bitcoin and other virtual currency trading.

On Wednesday, Bloomberg, citing unidentified people familiar with the matter, said China found that US bonds were becoming less attractive and that trade tensions with the USA could provide a reason to stop buying American government paper.

"We think this story could be quoting a mistaken source or it could also be a piece of fake news".

"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. "The market seems to have been looking for one-sided news to sell the dollar this week".

China has the world's largest foreign currency reserves, over $3 trillion, and is the biggest investor in United States government bonds, with $1.2 trillion in Treasuries as of October 2017, according to Treasury Department data. The Bloomberg News report had lifted yields on the 10-year government bond to a 10-month high on Wednesday. The VIX implied volatility index, the markets' so-called "fear gauge", hovered just above 10 on Thursday, from as low as 8.92 on January 2.

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The State Administration of Foreign Exchange (SAFE), which oversees China's massive currency reserves, questioned the accuracy of the news in a statement published on its website on Thursday. Higher interest rates in the eurozone can attract money managers at the expense of U.S. Treasurys, which may see outflows.

A separate probe into Chinese intellectual property practices may also conclude as early as this month, Axios reported, and could result in tariffs on the country's consumer-electronics exports.

"If China ceases to be a net purchaser of US Treasuries, this is unlikely to have a significant impact on the overall yield curve unless China divests a large share of its total holdings in a short time period", said Rajiv Biswas, Singaporebased chief Asia-Pacific economist at IHS Markit.

The euro traded at US$1.1950, extending its rebound from Tuesday's low of $1.1916.

An official of a bank-affiliated securities firm said the dollar's topside is likely to remain limited amid lingering speculation that the Bank of Japan will start tapering monetary stimulus following Tuesday's cut in the amount of super long-term Japanese government bonds it buys. "That's not helpful to a bond market that's already under pressure". Estimates say China now holds around $1.2 trillion (€1.0 trillion) in U.S. debt, an amount that has doubled over the past 10 years.

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