Will Europe or China Impact Treasuries More in 2018?

Will Europe or China Impact Treasuries More in 2018?

Will Europe or China Impact Treasuries More in 2018?

Yesterday, we noted a Bloomberg report that indicated some senior Chinese government officials had recommended "slowing or halting purchases of U.S. Treasuries".

At the start of 2018, Bloomberg had reported that sources told them that China was reviewing and could possibly halt purchases of U.S. Treasuries.

Even if it does happen, some commentators doubt it will affect the demand for US treasuries - "First, I don't think it's relevant, second, I don't think it's going to happen", one economist told CNBC.

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

"But markets quickly realized it's highly improbable China will stop buying US Treasuries", he added. While China has about a fifth of all foreign-held US debt at $1.2 trillion, making it the largest single holder, it's not clear how much of a sustained impact a Chinese retreat would have on USA borrowing costs. It isn't clear whether the recommendations of the officials have been adopted.

For most of a year ago, China was adding to its US sovereign debt holdings, monthly Treasury Department data show.

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

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

In short, private investors were already going to need to soak up more supply going forward as the Fed steps away.

Some analysts said on Wednesday that there has been an implicit threat from China to US President Donald Trump, after his strict standpoint in the global trade topic and his accusations of China of corrupt practices.

China's decisions on foreign exchange holdings, as well as its investments in US Treasuries, are market-driven, he explained. Data from China's central bank showed that China's foreign exchange reserves rose $3.14 trillion in December as tight regulations and a strong yuan continued to discourage capital outflows.