China considering halting purchases of U.S. debt; markets rattled

President Donald Trump and Chinese President Xi Jinping attend a dinner at Mar-a-Lago, Thursday, April 6, 2017, in Palm Beach, Fla. (AP Photo/Alexツ Brandon)

The Chinese government is considering halting its purchases of U.S. Treasuries, which are seen as the U.S. offloading its debt on foreign investors, because Beijing believes it is becoming less attractive than other assets.

The recommendations being offered in Beijing, according to reports, including ending all purchases of U.S. sovereign debt outright.

In addition to U.S. debt becoming less attractive, the potential of a trade war between the U.S. and China, the world’s two biggest economies respectively, is also driving the reconsideration.

“If China wasn’t the largest foreign holder of US debt this wouldn’t be a big deal. But, they are,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. China holds $3.1 trillion in foreign-exchange reserves, and constantly reconsiders how to invest them.

New of a potential change in purchases has rattled U.S. markets. Treasury prices fell, boosting yields, but the U.S. dollar also fell against most currencies while gold increased. In addition, the Dow Jones industrial average declined 100 points. [source]

“I get a real sense that the Chinese officials making the comments weren’t simply studying their charts of U.S. breakeven rates and concluding that yields may have bottomed,” one trader noted about the pending Chinese decision. “It sounded very much more a statement of, ‘Who the hell do you think you are?’ And probably should be taken in that context. Actions do have consequences.” [source]

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