Report on China slowing USA bond purchases may be 'fake,' says regulator

Bill Gross declares bond bear market as 10-year Treasury yield tops 2.55%

Why Impact on USD of Surge in Treasury Yields Might be Limited

The country is also the biggest foreign holder of USA government debt, with US$1.19 trillion in Treasuries as of October 2017, according to data from the Treasury Department.

The Australian dollar rose to a two month high after the release of the sales numbers, hitting 78.82 U.S. cents, before falling back slightly by 1200 AEDT.

Yields on 10-year Treasuries ended Wednesday little changed at about 2.56 percent, pulling back from close to the highest levels since 2014, and were at 2.53 percent Thursday in Asian trading.

The dollar index .DXY fell 0.44 percent, with the euro EUR= up 0.7 percent to $1.2029.

Overnight jitters in global bond markets triggered a flare-up in investor caution that knocked the Australian sharemarket lower again today.

"We go into the year on the proviso that the while the dollar may have become a little oversold and due a moderate correction, we favour the dollar structural depreciation to extend", Jeremy Stretch, currency strategist at London-based CIBC Capital Markets, told the Reuters Global Markets Forum.

"It is possible too that China wants to signal to its people that it will not keep financing the USA when the not treating China with respect", Mr. Setser said.

There is of course a historical precedent of such tactics backfiring on those who employ them. "But it's a market where investors don't get much of a return".

The $14 trillion Treasury market has been roiled in the past 48 hours. "It was a staggering display of economic incompetence that has landed taxpayers with a £7 billion black hole".

Why would China dump USA debt?

A forthcoming decision from Washington over whether to impose sanctions against China for its trade practices and alleged failure to enforce worldwide sanctions against North Korea may also have been at play.

The U.S. dollar fell to a more than six-week low against the Japanese yen and weakened against a basket of major currencies on Wednesday after a report that China was ready to slow or halt its U.S. Treasury purchases.

But some economists noted that China had already eased Treasury holdings and would not be able to more aggressively reduce holdings without hurting its portfolio, given its need for stable and liquid dollar assets, Reuters said.

When China buys U.S. bonds it is effectively bank-rolling the United States.

"The management of investments in China's foreign exchange reserves has always been carried out according to the principle of diversification and distribution", SAFE said in its statement. In 2017, the central bank also hiked rates three times.

The US dollar gained 0.3 per cent after the comment from China forex regulator, the State Administration of Foreign Exchange.

But others say China does not have too many options besides the U.S. government bonds into which it can invest its large forex reserves, making quick and dramatic moves unlikely.

US shares snapped their rally on Wednesday while the Canadian dollar and the Mexican peso fell after a Reuters report said Canada increasingly believes that President Donald Trump will soon announce his intention to withdraw from the North American Free Trade Agreement treaty. However, we believe USA inflation pressures are picking up. "That's not helpful to a bond market that's already under pressure". That's just how markets work.

"We don't see a material impact on the United States dollars, and our view is for further USD depreciation as the global economy picks up and "other" central banks look toward tightening their monetary policies", Grace and Haddad say.

The tightening effect of such measures would likely have an impact on how many times the Fed raises interest rates this year, which is why we've seen a corresponding drop in the dollar.

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