There’s nothing to see here, folks. Keep moving.
It’s a fake news story, for several reasons.
First, the story is less than unattributed. It doesn’t even cite sources at a particular state institution but only “people familiar with the matter.” The story reads, “Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of US Treasury securities according to people familiar with the matter.”
Second, China doesn’t signal major policy changes through American news organizations that it previously has kicked out of the mainland. It does so via Chinese-language state media and not a whisper of a policy change appeared from there.
Third, and most important, Chinese holdings of US Treasury securities haven’t changed much in the past five years. Neither have any other foreign holdings of US Treasury securities. The biggest change in Treasury holdings came from the US Federal Reserve, which increased its net holdings by nearly US$1 trillion under its quantitative easing program, not to mention a couple of trillion dollars of mortgage-backed securities.
It must have been a slow news day.
US Treasury yields have been rising, to be sure, but virtually all of the increase is due to higher oil prices.
The chart below plots the 10-year Treasury yield against the spot price for West Texas Intermediate crude:
As Asia Times reported yesterday, the inflation component of Treasury yields absorbed almost all of the increase since December 1st because rising crude prices feed directly into the Consumer Price Index. So-called real yields, that is, the yield on Treasury securities indexed to the Consumer Price Index, are pretty much where they were five weeks ago. All we have seen in the Treasury market is an adjustment to higher oil prices. Until 5:00 a.m. New York time on January 10th, that is, when Treasury yields bounced a bit after the Bloomberg story appeared.
It’s not as if markets are panicking about the US government bond market or the dollar. US stocks as of 12:00 p.m. January 10th were down fractionally, with the Dow Jones Industrials losing just 11 points, or 0.04%.
In the medium term, to be sure, America’s deficit, now at 3.4% of GDP, and its current account deficit, at 2.3% of GDP, give investors something to worry about. The US can’t go on borrowing forever and the world won’t let the US finance its deficit via the balance sheet of the Federal Reserve forever. But the rest of the world has been happy to own dollar assets for the past five years. We know this because purchases of gold – the ultimate insurance against the dollar – have been declining for the past five years.
We have seen a modest uptick in the gold price during the past few months. Most but not all of that is due to the weakness of the dollar. It’s a trend to watch but still a distant radar blip.
We wouldn’t buy Treasuries (or other sovereign bonds) just now. Oil prices are rising, US economic growth is higher and central banks will gradually reduce their enormous holdings of government securities. That suggests somewhat higher bond yields. China will continue to manage its portfolio of government bonds to its best advantage, the same way that other bond investors manage their portfolios.
And Bloomberg will have to come up with something different on the next slow news day.
The short term trend is unpredictable because of a mass of random noises including rumour and fake news everyday. Long term, Iran had their assets caught and kept in US for decades. Several years ago, US strategists discussed the possibility to retain China bought treasure security , in exchange for TW’s unification with China. Some predicted that US would not repay the bonds in any way, holding it as bargaining chips. China mass also know nations would detain each other’s assets and property in war time, since US and China are rivalries, they called Beijing government to get rid US bonds,for oil, gold, mineral resources, or investment for domestic current benefits, for west and northeast China are still backward. The for side argues China needs US bonds to balance the trade , keeping US market open to Chinese goods , and holding US bonds would help China to have power to influence USD’s movement, the dollar is still the main portion of foreign reserve. It shows the interdependence of nations’ economy, power relations are all about political economy. Money or bomb alone could not make decision. All powerful USA just could not have crushed very poor NK.
That would be equally disastrous for China, with a mega scale withdraw.
Lots of things happening that is not public knowledge.. Most likely it was a warning from China regarding Washington using taiwan as spendable lamb for leverage.. Something that Trump administration most likely agreed not to do early last year in exchange, among other concessions, of China resuming net purchase of US debt.
People has lost money on that fake news. How will Bloomberg be held accountable for this? Of course people like Bloomberg is thinking China is ecpected to behave like themselves, retaliating like kids denied a lollipop. A trade war is bad for everyone one whoever wins, if at all you will ever tally who wins. What is clear is that with every passing month, China becomes less and less dependent on world markets and can rely on its own market to sustain itself. Will this be a repeat of history where the western nations will use force to pry open the Chinese market?
The name "Bloomberg" should have said enough for me, but after reading further and upon realizing that this magazine has been booted out of China, it makes sense. Magazines with an ethnic name like "Bloomberg" strike back when treated harshly. Just ask the Palestinians.
Bloomberg LLP has a obsession with China————they spew out FAKE NEWS about the Middle Kingdom every day on all there "Media Platforms." And while I am talking about Bloomberg LLC———they are in attack mode with FAKE NEWS when it comes to the Presidency of Donald John Trump————–the owner Michael Blooberg’s hatred of Donald John Trump is quite obvious————somebody should tell Mr Bloomberg————–jealously is not a good for the SOUL!!
Lame reasons given in trying desparately to save face for the US. What this shows is China has great leverage over America. The US may think they score against China over their refusal of AT&T to carry Huawei phones on their network but China can crash bigger things on them. Hahaha.
bloombergs economist are forcadting economic data. if bloomberg is creating fake news for its own trding thn forvcast of its economist could be fake for same reason…that is unprofesional, redicilous. any penalty , punishment ?
If the US is vulnerable that means that all the US trength is all fake as well in the real world.
Even if it’s fake news, it’s not the first, and won’t be the last. Wonder why Mr Goldman would bother spending precious few minutes to debunk this particular piece, especially when the subject matter is old news, and one that he presently agrees with.
Better use the time to short USD, or better still, find a way to short Bitcoin.
I watched on CCTV an economist advocating buying oil from USA to reduce the deficit between the 2 countries. The main reason is not to hold on a piece of paper which USA can keep printing. Getting something real in return is more practical.
Their big tax reform is 1.5 trillion deficit in 10 years. Another trillion deficit if they decide to spend on infrastructure.
Call it fake news because it is In God we trust. Go ask God if you get screwed.