Pimco could add US Treasuries if market weakens further: Ivascyn


Bloomberg reported Wednesday that the Chinese government is looking to cut back on the amount of USA government debt it buys, citing unidentified people familiar with the matter.

"The management of investments in China's foreign exchange reserves has always been carried out according to the principle of diversification and distribution", SAFE said in its statement.

They also said that trade tensions with the United States were another reason to slow Treasury purchases, though they did not specify precisely why this was the case.

For his part, Jeffrey Gundlach, known on Wall Street as the "Bond King", said on an investor webcast on Tuesday that if the 10-year Treasury yield pushes above 2.63 percent, it will accelerate higher.

China's foreign exchange reserves - the world's largest - rose to US$3.14tn in December.

Some of the dollars spent on these goods eventually find their way to China's central bank, which uses them to buy US government debt.

Senior Chinese government officials have recommended slowing or halting purchases of Treasuries, in part given trade tensions with the USA, according to people familiar with the matter cited by Bloomberg News Wednesday - news that wound up having little lasting impact on trading as yields ended little changed after spiking to the highest since March.

The dollar had been on the back foot even before the news report as the Bank of Japan's move to trim its purchases of long-dated government bonds (JGB) this week reverberated across currency markets.

Inflation pressures have the capacity to prompt the Federal Reserve to drive the U.S. base rate higher, which would mean market interest rates (bond yields) also have to move higher.

The U.S. central bank's preferred inflation measure, the personal consumption expenditures price index excluding food and energy, has undershot its target since May 2012.

"The dollar may fall to around ¥110" in the days to come, the official said. The German 10-year bond yield rose 4.1 basis points to 0.520%, more than a five-month high.

Investors worry that if China purchases fewer Treasuries, the US government will have to find alternative buyers.

"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. Trump is facing decision time as deadlines approach over whether to slap tariffs on imports from steel and aluminum to solar panels, which would be clearly aimed at China.

Rising yields mean lower prices, which in turn cut into returns for bond investors looking for capital appreciation.