China may stop buying US Treasury bonds

China may stop buying US Treasury bonds

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Chinese officials responsible for reviewing the country's enormous foreign exchange reserves have recommended either slowing or stopping purchases of US Treasury bonds, Reuters reports via Bloomberg News. The decision is based on the fact that other investments may offer better returns, but also on the mounting trade tensions between Beijing and Washington.

US Treasury yields rose to a 10-month high and the dollar fell following the news, published by Bloomberg on Wednesday. China has the world's largest foreign currency reserves, over $3 trillion, and is the biggest investor in US government bonds, with $1.2 trillion in Treasuries as of October 2017, according to Treasury Department data.

Economists made clear, however, that China would not be able to make radical changes to the composition of its reserves as it needs them to manage the exchange rate of the renminbi.

The Bloomberg report, which cited people familiar with the matter without identifying their seniority or role in compiling the report, quoted the sources as saying the market for US government bonds is becoming less attractive relative to other assets. They also said that trade tensions with the United States were another reason to slow Treasury purchases, though they did not specify precisely why this was the case.