Source: Bloomberg

US treasury yields dropped sharply after a Bloomberg headline stating that China would buy more US Treasuries now that the RMB has stabilized.

An end to currency outflows in response to a mild tightening of monetary policy would increase China’s foreign exchange reserves, some of which may be invested in US government securities. The question is whether China will deploy its reserves into Treasuries or into its $1 trillion One Belt/One Road infrastructure project.