Published: Sun, January 14, 2018
Markets | By Erika Turner

Asian Shares Fall After Report Overnight On China's Views On US Treasurys

Asian Shares Fall After Report Overnight On China's Views On US Treasurys

Bloomberg News reported Wednesday that officials reviewing China's foreign exchange holdings had recommended slowing or halting purchases of US Treasuries, with the greenback tumbling as a result. On Tuesday, the dollar fell 0.39 percent against the yen. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.

But others said short sellers were squeezed out by the sudden downshift in yields prompted them to buy back, or "covering", the securities they had borrowed, juicing the late day rally.

CURRENCIES: The dollar rose to 111.68 Japanese yen from 111.43 yen.

China has rejected a news report about its plans to slow or halt purchases of US Treasury bonds, saying it is either "fake news" or based on incorrect sources.

But China, with its huge pile of United States treasuries, is unlikely to take any hasty decision that would destabilise the market as it would amount to commiting hara-kiri.

"Given our big Treasury holdings, sometimes we sell some and sometimes we buy some, changes will not be very big and there won't be big impact on markets", said Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing think tank.

The report fueled concern that China might use its $1.2 trillion Treasury stockpile - the largest of any foreign country - as leverage should U.S. President Donald Trump act on his administration's increasingly confrontational trade rhetoric. 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.

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".

Energy stocks also added a few points to the index as oil prices stayed robust due to production cuts and a fall in USA inventories. Oh, and if memory serves, China has been talking about this type of diversification for as long as I can remember.

Trump speaks to farmers, highlighting taxes and trade
Trump praised the hard work of farmers and those in the agriculture industry. "It's under negotiation as we speak", Trump said. Trump also said he looks to support an on-time farm bill. "Small and mid-sized businesses will receive massive tax cuts".

China has the world's largest currency reserves, approximately $US3 trillion.

If central bank reserves are to be truly diversified, or bare any resemblance to the shape of the global economy, then reserves managers have to keep pace with this trend.

U.S. inflation data are forecast to show price pressures remain muted for now, giving hawks little reason to argue for faster tightening.

After moving to within a whisker of the 2.6% level (2.595% to be exact) yesterday, the yield on the US government's 10-Year Treasury pulled back in the afternoon and closed at 2.55%.

Analysts say the market for U.S. government bonds is becoming less attractive relative to other assets.

The move by the BoJ came as a surprise although some traders said it was just a technical tweak in line with the central bank's policies to date.

The US dollar fell, as did US bonds and stocks.

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

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