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The report notes that Beijing officials have advised financial institutions to pare down their holdings of US Treasuries, citing worries about “concentration risks” and “market volatility”. The Chinese regulators are said to urge banks to limit purchases of US government bonds while also commanding those with high exposure to cut down on their positions.Naturally, this of course doesn’t involve China’s state holdings of US Treasuries. However, it is a directive that is said to be communicated to some of the nation’s biggest banks in recent weeks.Beijing’s reasoning for the call is that they are sharing similar concerns to market players and other central banks/governments in that US assets have lost their appeal and status as a haven asset amid the recent market turbulence. That especially considering the Trump administration’s incoherent and erratic policy approach.Of note though, the sources in the report mention that the directive came before last week’s call between Trump and Xi. As a reminder, the two leaders held talks in the past week with Trump laying out plans to visit China in April.However, I’m guessing that regardless of the matter that the order above will hold. And that will be the new market convention that Chinese banks will have to follow, or should I say keep following.As a reminder, China has continued to systematically withdraw their support for US Treasuries over the years. No, they’re not exactly dumping them per se but they are being more of a “stealth seller” so to speak.The data speaks for itself with China’s direct holdings of US Treasuries falling to $682 billion as of January this year. That marks a 17-year low and well down from the peak of $1.3 trillion roughly a decade ago.10-year Treasury yields have nudged up slightly on the report here, moving up to 4.24% on the day – up from around 4.22% earlier.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
China’s push to reduce US Treasury holdings could shake up global markets significantly. This move reflects broader concerns about market volatility and concentration risks, which could lead to increased selling pressure on Treasuries. For traders, this is a critical moment to monitor the yield curve, especially if yields start to rise as demand wanes. A spike in yields could impact not just US bonds but also equities and commodities, as higher borrowing costs ripple through the economy. Keep an eye on the 10-year Treasury yield; if it breaks above recent resistance levels, it could signal a broader risk-off sentiment. Conversely, if the market absorbs this news without significant yield spikes, it might indicate underlying strength in the bond market. On the flip side, this could present a buying opportunity for those looking at US assets, especially if the market overreacts to the news. Watch for institutional reactions, as they might adjust their positions based on these developments, which could create volatility in related markets like forex and commodities.
📮 Takeaway
Traders should monitor the 10-year Treasury yield closely; a break above key resistance could signal increased market volatility and impact related assets.
