Will China Dumping US Bonds Undermine Global Finance?

China, Russia and Brazil have recently been selling US Treasuries, hedging their fiscal risks and stirring volatility on Wall Street, potentially signaling a more significant slowdown in the global economy coming up.

Kristian Rouz — Several emerging markets, including China, Brazil, Russia and Taiwan, previously among the biggest buyers of US governmental bonds, have recently been selling them at the fastest pace since 1978. US bonds, commonly referred to as ‘Treasury notes’ or ‘Treasuries’ are, however, widely regarded as being among the most ‘safe haven’ assets in the financial world, meaning the emerging markets must have serious reason to cash those out for the more volatile money liquidity.

The emerging market selloff in US Treasuries affected the open market on Wednesday. The benchmark 10-year Treasury note fell 10/32 in price, driving the yield up 3.5 basis points to 2.070%, suggesting greater volatility to Wall Street. The 30-year Treasuries followed a similar pattern, diving in price and so pushing the yield to just above 2%. The fall in the US debt price comes in handy just before Thursday’s $13 bln Treasury auction of 30-year notes, fueling demand from private investors both in and outside of the US.

According to People’s Bank of China (PBOC), the weakening of the renminbi requires that the regulator buys the Chinese national currency selling dollars from its FX reserves in order to contain the renminbi’s further depreciation. Now, in September only, mainland China’s FX reserves fell by $43.3 bln after losing $93.9 bln the previous month. Sales of US debt make up some of these losses, however, as China struggles for competitiveness and attempts to spur growth, the PBOC might enact further accommodative measures, meaning we might soon see further sales of US debt as the Chinese regulator will need money liquidity to finance its growth stimulus efforts.

What will happen to US Treasury yields in this case? If China continues to sell US bonds, effectively mounting more upward pressure onto the yield, Wall Street volatility would be prone to rise.

Full article: Will China Dumping US Bonds Undermine Global Finance? (Sputnik News)

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