Photo: Ahn Young-joon, Associated Press
KEB Hana Bank Headquarters in Seoul, South Korea, Thursday, Jan. A currency trader talks on the phone at the foreign exchange 11, 2018. Asian stock markets were down on Thursday after Wall Street posted its first loss this year. Reports that China can slow down its purchase of U.S. government bonds weighed on investor feeling. (AP Photo / Ahn Young-joon) less
KEB Hana Bank Headquarters in Seoul, South Korea, Thursday, Jan. A currency trader talks on the phone at the foreign exchange 11, 2018. Asian stock markets were lower on Thursday after Wall … more
Photo: Ahn Young-joon, Associated Press
Fears of a global selling spree investors in bond markets
For nearly a decade, central banks around the world have been the largest buyers of bonding, and soaring.
Now, investors are starting to worry about what would happen if the richest nations start to scale back.
The most immediate fear: A sharp falloff in bond prices. Beyond that, there is a looming concern that has the global economy heats up, inflation, has surged investor’s hand worry, will start to inch up, fed by higher wage demands on the part of workers everywhere.
“Your biggest investor might be stepping back, that’s what spooked people,” said John Briggs, a strategic strategist at NatWest Markets. “The market is very vulnerable to any change in supply and demand.”
This vulnerability has been shown to increase the yield of the bond – 10 – year US Treasury benchmark to a high of 2.59 percent on Wednesday. 2.3 percent late last year. It closed the week at 2.55 percent.
China’s central bank, which owns $ 1.2 trillion in U.S. Treasury bonds, may be poised to slow or even halt its buying of U.S. debt. China has total reserves of just over $ 3 trillion.
Yields on 10-year Treasury notes climbed in early trading, and the dollar weakened at the prospect of a sale of U.S. bonds by China. The rising yields of Bill Gross of Janus Henderson, whose renown as a bond investor to the market for fixed-income securities, to declare the start of a market for bonds, he said on Wednesday that he did not foresee drastic losses.
So far, China has made no official statement on its plans for its U.S. Treasurys. Analysts do not believe that the country, which under President Xi Jinping has taken pride in its status as an elite member of the club of wealthy nations, would rashly unload the securities it has been amassed over the years.
Not only would it be able to hurt China by decreasing the value of its bond holdings, it would have to be avoided in a global economy that the country is now fully integrated into deep-frozen and financial links.
To some experts, a move by China to pull back on its bond-buying could simply be seen as responsible-reserve management by one of the world’s richest central banks. “The boring explanation is that China just has enough Treasures in its portfolio,” said Brad Setser, an expert in global capital flows at the Council on Foreign Relations.
But there is another interpretation of the tensions between the United States and China over North Korea and trade. “It is possible that China wants to signal that it will not support the United States when the United States is not treating China with respect,” said Setser.
There is no doubt that the President of the United States is less likely to be attractive than the United States.
The mother thought that China might choose to unload some of its treasuries in the United States, Japan and Europe.
All told, the three central banks are sitting on $ 14 trillion in securities they have bought since 2009: a $ 4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank’s $ 5 trillion in corporate and government bonds; and $ 4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.
Moreover, the view that the U.S. government, in the wake of the tax cut package, will have to issue more securities to finance.
“The U.S. is about to issue a whole lot more debt,” said Daniel Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. “What are you going for?”
And that is bad news for bond investors.
Landon Thomas Jr. is a New York Times writer.