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13 Enero 2018, 12:59 | Martinez Canez
Bill Gross declares bond bear market as 10-year Treasury yield tops 2.55%
China's foreign exchange watchdog has denied on Thursday that Beijing was considering suspending or slowing down its purchase of US Treasuries, refuting a news report the previous day which has weighed on US government bonds and the US dollar.
The catalyst was reports overnight that China could be reconsidering its foreign exchange reserve holdings in U.S. Treasury bonds - a major source of buying demand that has for decades helped keep American borrowing costs low.
The $14 trillion Treasury market has been roiled in the past 48 hours.
The US 10-year Treasury yield edged down to 2.5366 percent from Wednesday's close of 2.549 percent, while the dollar gained 0.3 percent to 111.72 yen after the regulator's comment. The debt is becoming less attractive compared with other assets and trade tensions with the USA may provide a reason for the shift, the thinking of the officials goes, according to the people.
Dan Ivascyn, the group chief investment officer at Pacific Investment Management Co, told Reuters on Wednesday he would consider adding U.S. Treasuries to the firm's portfolios if the bond market weakens further.
"You could be long dollar-yen and you could be long USA treasuries and you were getting yield on both sides of that".
Germany's 10-year bond yield hit its highest level since the October European Central Bank meeting when policymakers first announced the extension of its bond-buying scheme, with one trader citing heavy supply as the trigger for the move.
Asian shares were weaker on Thursday in a follow-through from Wall Street but comments in the mid-Asian day that China is not looking to trim US Treasury purchases outside of normal market operations changed the tone.
The Australian dollar touched its highest levels in almost three months at $0.7887 after data showed that Australian retail sales recorded the biggest monthly rise in four years in November.
China Voices Concern Over Trade Protectionism in U.S.
The knee-jerk reaction for bond-bears was to sell bonds, but a strong USA treasury auction and cool analysis from some strategists prompted a turnaround. "I don't think that's worked out so poorly for the U.S".
"It could be an intentional leak to warn the Trump Administration that China has some levers to pull in responding to any punitive protectionist measures on trade", said Aidan Yao, senior emerging Asia economist at AXA Investment Managers Asia. The Federal Reserve and other central banks may be winding down their quantitative easing programmes but private sector buyers are ready to step in.
"It's certainly more of a hawkish tilt in the minutes", said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.
Bloom agrees that China has few places to shift its reserves.
"If that news is true, you'd expect a higher dollar price and a negative impact to earnings", said Mackay. The yuan gained around 6.8 percent versus the dollar a year ago.
That spooked investors anxious that sharp swings in China's massive holdings of US Treasuries would trigger a selloff in bond and equity markets globally.
"Their holdings have moved up and down through time", he said.
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