Published: Thu, January 11, 2018
Economy | By Shawn Conner

Gold Up on Report China May Slow US Treasury Buys

Gold Up on Report China May Slow US Treasury Buys

China wouldn't let geopolitical issues drive decisions on foreign exchange holdings, the Eurasia Group said, after Bloomberg News reported officials had recommended scaling back USA government debt purchases. USA equities declined.

Bloomberg News reported on Wednesday that Chinese officials reviewing the country's vast foreign exchange holdings had recommended slowing or halting purchases of U.S. Treasury bonds amid a less attractive market for them and rising U.S. The report sent USA 10-year Treasury yields to 10-month highs and dented the dollar on Wednesday, which slid almost 1.1 percent on trading platform EBS, its biggest one-day percentage fall versus the yen since last May.

Bloomberg News did not immediately comment on the foreign exchange regulator's statement.

The Chinese move comes just as the USA prepares to boost its supply of debt.

Jim Paulsen, chief investment strategist at The Leuthhold Group, a money-management firm in Minneapolis, says China is more likely eyeing sales of USA bonds for the same reason investors in the US and elsewhere are: Fear that inflation is on the rise and will erode the value of fixed-income investments.

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

China uses its holdings of foreign currency bonds to keep its currency at the rate where it wants it, and given this desire for stability, there might not be much room for manoeuvre on the composition of its reserves.

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Chinese firms' business deals with USA companies - one involving Alibaba Group Holding Ltd and another involving Huawei Technologies Co - have also recently hit stumbling blocks over national security concerns.

But the Eurasia Group analysts said that China had more targeted tools to pressure the US and retaliate against trade measures.

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I am aware that this issue has occupied the attention of the public for some time and deserves to be addressed urgently, the note says.

"As with other investments, professional management of China's foreign reserves investment in American bonds is professionally managed according to market activity, on the basis of market conditions and investment needs".

"The US Treasury market is a deep, robust market within the world and so we are confident that our economy, with the economy strengthening, that it will remain a deep, robust market", Malpass said when asked to comment on the report.

The dollar regained some ground on Thursday, edging up 0.1 percent to 111.54 yen.

China's holding of USA government debt - the world's largest, climbed $131 billion in the first 10 months of 2017 to $1.19 trillion (881 billion pounds), data from the Treasury Department showed.

Bloomberg News estimates that the Chinese state now holds around US$1.2 trillion in USA debt, an amount that has doubled over the last 10 years.

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The debt holdings accounted for 38 percent of China's total reserves, up from 35 percent at the end of 2016.

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