China May Stop Buying US Treasuries

For representational purposes

The report also notes that Chinese officials think US debt is becoming less attractive compared to other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases.

The US dollar is under strong sales pressure after the Bloomberg agency said the Chinese authorities would reduce or even stop buying US Treasuries, said the BNR.

Bloomberg said the Chinese officials did not specify why trade tensions would cause a cutback in Treasuries purchases, but it said foreign holdings of US securities have sometimes been a geopolitical football in the past. They also cited trade tensions with the United States as a reason to slow Treasury purchases, the report said.

A top Treasury official signaled confidence in the USA government debt market, which at $14.5 trillion is the world's largest.

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The yield on 10-year U.S. Treasuries hit a 10-month high of 2.588 percent in European trade and was up 4 basis points on the day.

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High profile bond investor Bill Gross of Janus Henderson Group also said on Twitter on Tuesday that bonds are in a bear market.

Any reduction in Chinese purchases would come just as the US prepares to boost its supply of debt.

A taper in Chinese purchases would come as the Federal Reserve unwinds the massive balance sheet it amassed following the financial crisis. "For years they have been bothered by the fact that they are so heavily invested in one particular class of USA bonds, so it's just a question of time before they would try to diversify".

However, with China holding approximately $3 trillion in foreign exchange reserves, it was not clear what other markets would be large enough to invest in should China reduce its participation in the Treasury market, raising some speculation that the news may constitute some political bargaining. China's central bank amasses dollars when the country turns a large trade surplus with countries such as the USA and when Chinese authorities manipulate their currency by selling it and buying dollars.

Markets are also braced for a deluge of debt supply this week.