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Treasuries dump just fake news, says Beijing

Top News | Jan 12, 2018
China is diversifying its foreign exchange reserves in order to safeguard their value, the currency regulator said yesterday, while dismissing a report the government is halting or reducing its purchases of US debt.

Bloomberg News had reported that officials reviewing the country's vast foreign exchange holdings had recommended slowing or halting purchases of US Treasury bonds amid a less attractive market for them and rising China-US trade tensions.

That spooked investors worried that sharp swings in China's massive holdings of US Treasuries would trigger a sell-off in bond and equity markets globally. The report sent US Treasury yields to 10-month highs and the dollar lower.

"The news could quote the wrong source of information, or may be fake news," the State Administration of Foreign Exchange said on its website.

The US 10-year Treasury yield edged down to 2.5366 percent from Wednesday's close of 2.549 percent, while the dollar gained 0.3 percent to 111.72 yen after the regulator's comment.

China has been diversifying its foreign currency reserves investments to help "safeguard the overall safety of foreign exchange assets and preserve and increase their value," the regulator said.

Few economists believe dumping US Treasuries is among policy choices to be considered by top leaders.

Trade tensions between China and the United States are expected to rise as President Donald Trump weighs potential trade actions against Beijing.

Dumping US debt holdings could roil financial markets and force the United States to scramble for funds, but analysts believe such a move by Beijing would risk starting a fire sale in which the value of its own portfolio would burn.

"Given our big Treasury holdings, sometimes we sell some and sometimes we buy some, changes will not be very big and there won't be big impact on markets," said Xu Hongcai, deputy chief economist at the China Center for International Economic Exchanges, a Beijing think tank.

"We should have full confidence in the US Treasury debt market, its depth and capacity are very big."

China's foreign exchange reserves, the world's largest, rose by US$129.4 billion (HK$1 trillion) last year to US$3.14 trillion as tight regulations and a strong yuan continued to discourage capital outflows, data from China's central bank showed.

China's holding of US government debt climbed by US$131 billion in the first 10 months of last year to US$1.19 trillion.

The exact composition of China's reserves is a state secret and the subject of intense scrutiny by global investors.

REUTERS



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