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

China holds the world’s largest foreign-exchange reserves at $3.1 trillion and regularly assesses its strategy for investing them

China holds the world’s largest foreign-exchange reserves at $3.1 trillion and regularly assesses its strategy for investing them

"Central bank reported holdings of US treasuries will generally register a decline when global foreign exchange reserves or the Dollars depreciates (chart 3)".

The jump in USA yields over the past week was the seventh time in the past 12 months that the US yield curve between two and 10 years steepened by 10 basis points or more.

Benchmark 10-year notes last fell 10/32 in price to yield 2.5825pc, from 2.546pc late on Tuesday. That has caused the two-10-year United States yield curve to steepen to 59 basis points - a jump of 10 bps this week.

U.S. Treasury yields jumped to 10-month highs on Wednesday.

Australian 10-year bonds rose 2.1 points to 2.74 per cent.

"So much focus has been on the Federal Reserve and the ECB, but everyone sort of forgot about the Bank of Japan". "But even if they do, they would do it in a way that won't disrupt the market".

"There's no way on earth the Chinese stop buying U.S. Treasuries".

For China and its Treasuries holdings, "things are more or less as they always have been", said Seth Carpenter, chief USA economist at UBS Securities LLC in NY and a former Fed and Treasury official.

There may be bond market tremors right now but no quake.

Meanwhile, demand for US and other high-grade sovereign bonds is as strong as ever.

Rising oil prices could fan inflation down the road, which could be detrimental to some countries that have been prone to high inflation.

The Canadian dollar traded at C$1.2554 per USA dollar after having lost 0.7 percent on Wednesday.

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Brent crude rose 0.5 per cent to $US69.15 per barrel, staying near its highest level since mid 2015. "This positive relationship exists because many central banks intervene to slow the appreciation of their exchange rates when the Dollars depreciates", Commonwealth's strategists note.

"To date, USA inflation pressures have remain muted". But it highlighted the fact that unwinding of central bank stimulus will be a main theme this year.

"We are far more inclined to see a move by SAFE, if confirmed, as a conventional investment decision", Eurasia Group said.

The Japanese government bond yield ticked up to 0.080 per cent, the top of its range in the past several months.

On Wall Street, the S&P 500 ended its six-day winning streak by slipping 0.1 per cent, but the S&P-ASX 200 index returned to its underperforming ways and fell 29 points, or 0.48 per cent, to 6067.6.

Inflation pressures have the capacity to prompt the Federal Reserve to drive the U.S. base rate higher, which would mean market interest rates (bond yields) also have to move higher. It recovered slightly from an overnight low of 91.67. Japan's Nikkei finished 0.3 percent lower.

The MSCI world equity index, which tracks shares in 47 countries, was flat.

Palladium dropped 1.5% at 1,083.97 oz, after hitting a record high Tuesday at 1,111.40.

Declining issues outnumbered advancing ones on the NYSE by a 1.59-to-1 ratio; on Nasdaq, a 1.09-to-1 ratio favored decliners.

Platinum was up 0.9% at 973.60 oz, after hitting a 4-month high at 973.90. Investors are taking profits in high-flying hi-tech shares.

"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.

"China's showing that they have power in the relationship, as anyone who's a buyer of U.S. Treasuries does", said Eric Stein, co-director of global fixed income at Eaton Vance in Boston.

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