China Weighs Slowing or Halting Purchases of U.S. Treasuries
China added to bond investors’ jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market. Officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day. China’s foreign-exchange reserves of $3.1 trillion are the world’s largest, though it wasn’t clear whether the recommendations have been adopted. The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt, the thinking of these officials goes, according to the people, who asked not to be named as they aren’t allowed to discuss the matter publicly. China’s State Administration of Foreign Exchange didn’t immediately reply to a fax seeking comment on the matter.
German yields at highest since Oct ECB meeting as bond sentiment turns
Germany’s 10-year bond yield on Wednesday hit its highest level since the European Central Bank in October extended and cut its bond buying scheme, as central bank speculation and heavy new debt supply across the euro zone knocked investor sentiment. A combination of factors has pushed yields higher in recent days, with global growth and higher oil prices making investors speculate that central banks globally will tighten policy. Some investors saw a Bank of Japan reduction of bond purchases this week as a potential early signal of this. U.S. 10-year Treasury yields, pushed up on Tuesday by the BoJ news, hit fresh 10-month highs around 2.59 percent on Wednesday after a Bloomberg report that Chinese officials are recommending lower U.S. government bond purchases. “Watching the BOJ is quite important because if they start to move on that, that’s your last major central bank liquidity provider disappearing. That would have an impact on Europe and one of the ways that would happen is you would see yield curves steepen,” said David Zahn, Franklin Templeton’s head of European fixed income.
Banks Get Shot in Arm From Treasury Selloff as Goldman Says Buy
Bank bulls can rejoice. A wave of government-debt selling is spurring love for the stocks that suffered some of the biggest blows in a world of record-low interest rates. In Europe, a gauge of lenders rose for a seventh session on Wednesday, on track for its highest close since 2015. Asian financial stocks rallied to a decade high, following overnight gains that pushed U.S. banks to 2007 levels as Treasuries plunged. Investors are speculating that rising yields, or a steeper curve, will help banks generate more profits as they tend to borrow short term and lend long term. Higher yields may also reflect better economic growth, which spurs demand for loans from companies and consumers. While a selloff in bonds may be a risk for equity investors, financial stocks across the world are a good bet for 2018, says Goldman Sachs Group Inc. “We like financials in all of the major markets,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said in an interview with Bloomberg TV’s Matt Miller in Frankfurt. “We think they’re not only a positive and levered play on growth, but will benefit a lot from a shift higher in interest rates or steeper yield curves.”