Dollar bruised by worries over China's stance on U.S. bonds

Galtero Lara
Enero 14, 2018

A Pacific Investment Management Co (PIMCO) sign is shown in Newport Beach, California August 4, 2015.

National Australia Bank strategist Alex Stanley said global demand for US Treasuries was a major risk to watch, "but one should be wary of extrapolating reports on China demand into views that yields are poised for an imminent surge higher".

China has been diversifying its foreign exchange reserves investments, the source who declined to be named said, adding that China's investments in U.S. Treasuries are market-driven.

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. On Tuesday, the Bank of Japan said it would trim its purchases of Japanese government bonds, raising speculation it will reduce its monetary stimulus this year.

Gold rose Wednesday, hitting its highest mark in 4 months, as the Dollars declines on a report that Chinese officials had recommended slowing or halting purchases of US Treasury securities, the Treasury market was flat to unchanged at its close Wednesday. China is the largest foreign holder of U.S. Treasuries.

The US Dollar rose during early trading in London Thursday as traders shook off earlier concerns over a reported threat by Chinese officials to walk away from the US Treasury bond market.

US West Texas Intermediate (WTI) crude futures traded at US$63.47 (RM254.26) per barrel, after hitting a high of US$63.67 in the previous session, their loftiest level since December 2014.

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This week's bond wobble comes as President Donald Trump looks to balance its huge trade surplus with China, and as Washington loses patience with Beijing over its handling of the North Korea nuclear crisis. "This is likely a warning shot that can lead to a bit of volatility short term". "It is possible too that China wants to signal to its people that it will not keep financing the USA when the U.S.is not treating China with respect", Mr. Setser said. "Is that a bear market? No".

Others are not so sure.

The regulator added that forex reserves management agencies are responsible investors in worldwide financial markets.

He added the 25-year trend lines had been broken in five- and ten-year Treasury maturities.

In order for bond yields to move higher, bond prices would have to fall as the "coupon" interest payment is fixed at the point when new bonds are issued and can not be changed to compensate for higher (better) base rates. In an interview with Bloomberg, he said that there appears to be a "negative type of posture for bonds".

BMO suggests buying 10-year Treasuries if yields climb to 2.6%.

That 10-year yield level Gundlach referred to was a level last seen a day before the Federal Reserve raised interest rates at its March 14-15 policy meeting.

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