Beijing weighs slowing, halting purchases of US Treasuries

USD/JPY: Bank of Japan's Yield Curve Control Could Weigh
Stock Rally Tested by Rise in Yields; Yen Climbs: Markets Wrap
Author

14 January, 2018

The report, published by Bloomberg on Wednesday, cited unnamed sources as saying that government officials reviewing China's foreign exchange holdings had recommended slowing or even halting the accumulation of US Treasuries.

China's foreign exchange regulator said on Thursday the report may be based on erroneous information and could be "fake", helping to underpin both USA and Japanese bonds.

"The dollar was already notably weak ahead of today, despite the fact that USA data remained strong and yields continued to rise", he said. However, the situation is worth monitoring. The news sent 10-year US Treasury bond yields to their highest levels since March last year, while the dollar fell against a number of major currencies. The spread between 2- and 10-year yields is a widely watched measure of the yield curve.

Antoine Bouvet, an interest-rates strategist at Mizuho International Plc, said that the latest move higher in Treasury yields is part of a fundamental trend that should persist in 2018.

"However, rising US inflation suggests some upside risks to the United States dollars are potentially building, emanating from inflation-driven higher USA yields, and larger than expected Fed rate hikes". This has helped companies invest in their operations and conduct mergers and acquisitions, among other things.

The top performer in FX markets was again the Japanese yen, extending its gains from the previous night after the BoJ reduced its purchases of longer-dated JGBs. But it wasn't enough to prevent the first down day for the market so far this year, breaking a historic New Year's rally.

In Greater China, the fell 0.15%, and the dipped 0.17%. In football, if running up the middle keeps working, a team is likely to keep doing it.

"All those people that would have had that trade on are stopped out". Aluminum and airline stocks carried the day, with Boeing Co (NYSE:BA) up 0.6%. The yen jumped better than 1% to ¥111.5 per dollar, a six-week high.

Dollars under pressure Vs JPY after the Bank of Japan (BOJ) moved to trim its long-dated government bond purchases this week, was on track to post its biggest 1-day drop Vs JPY in 7 weeks.

Commodities in general climbed higher on the futures market Wednesday.

Fed speakers are back on the prowl today, with several expected to talk.

St. Louis Fed bank President James Bullard and head of the New York Fed Bill Dudley are among central bankers scheduled to speak.

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"With all that said, and similar to our views from a year or so ago, it remains premature to declare beginnings of bear markets", he added.

In addition, the 10-year US Treasury yield reached as high as 2.59 per cent - its highest level in nearly a year.

But most of the other S&P sectors were sold-off, with the worst performers being the interest-rate sensitive real estate and utilities sectors.

And that is bad news for bond investors. As with all such advisory services, past results are never a guarantee of future results.

Another potential barrier for the stock market could be steadily rising oil prices.

Brent crude prices hit $70 a barrel on signs of tightening crude stocks but settled off that level on Thursday, while a jump in energy shares helped lift USA stocks.

"It's upsetting the supply and demand balance if the report is true".

The pan-European FTSEurofirst 300 index lost 0.26 percent and MSCI's gauge of stocks across the globe gained 0.38 percent.

What happened on Wall Street?

The dollar was flat against the euro, holding below the key level of $1.20 before the publication of the minutes of the last European Central Bank meeting in December, when policymakers held monetary policy unchanged.

Investors are also starting to price in quicker inflation. Wage growth is seen as a signal of potential inflation.


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