China denies report it may stop buying US Treasury debt

Jeannie Matthews
January 13, 2018

China's State Administration of Foreign Exchange (SAFE) released a statement on the topic of China considering a slowdown or halt of purchases of U.S. Treasury bonds as incorrect information.

"Diversifying the forex reserves means that holding less U.S. Treasuries is inevitable", the person said to Market News.

China's foreign exchange reserves, the world's largest, reached a total of $1.19 billion trillion in October 2017.

Beijing is the biggest holder of US debt and the news was seen by some as a veiled threat to US President Donald Trump following his tough talk on global trade and, in particular, what he sees as China's unfair practices.

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After information that circled regarding Chinese recommendations regarding US bonds and caused a vast turmoil in the markets for several hours, the State Administration of Foreign Exchange of the People's Republic of China stated on Thursday that rumors about China considering slowing or halting purchases of US Treasuries might be fake.

The market for US government bonds is becoming less attractive relative to other assets, and trade tensions with the USA may provide a reason to adjust the pace of purchases, the thinking of these Chinese officials goes, according to people familiar with the matter cited by Bloomberg.

Which geographic regions will impact U.S. Treasuries more in 2018, China, Middle East or Europe? "If there are trade difficulties, then China will have fewer dollars flowing in and thus will have less need to invest those dollars in Treasuries", said Stephen Stanley, chief economist at Amherst Pierpont Securities.

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