Pimco, one of the world's biggest money managers, sees this week's USA bond market selloff as a buying opportunity and is not ready to call the spike in 10-year Treasury yield to a nine-month high a bear market precursor. As in 2009, the latest news fanning concern about China's appetite for US borrowings comes at an inopportune time, with the Treasury set to ramp up issuance as the Federal Reserve is shrinking its balance sheet.
"While U.S. -China tensions are rising, it is very unlikely that China would slow its purchases of U.S. Treasuries to warn the Trump administration against aggressive trade measures", analysts for the political risk consultancy, including Asia Director Michael Hirson and Global Strategy Director Karthik Sankaran, wrote in a note Thursday.
Any reduction in Chinese purchases would come just as the USA prepares to boost its supply of debt. It said investments in Treasuries are decided by market conditions.
The $14 trillion Treasury market has been roiled in the past 48 hours.
Gross said the days of mid-single digit returns for bond investors are likely over. "I don't think we're headed for investment Armageddon".
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The report also notes that Chinese officials think USA debt is becoming less attractive compared with other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases. In short, the United States government sells investors their debt at a preferential rate for them, and as part of a risk-free investment for the buyer, in this case, the Chinese government.
The strategists question the reliability of the report because, if China really were about to stop buying US Treasuries and chose to telegraph it beforehand, then it would hurt itself by driving down the value of the bonds already held on the PBOC's balance sheet.
The US dollar fell, as did US bonds and stocks.
The stakes may be higher now as tensions with the US have been building since the election of President Donald Trump, who's been critical of the American trade deficit with China and other countries.
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For his part, Jeffrey Gundlach, known on Wall Street as the "Bond King", said on an investor webcast on Tuesday that if the 10-year Treasury yield pushes above 2.63 percent, it will accelerate higher.
In the eyes of some, Chinese officials may be trying to send a message that they have leverage with President Trump talking tough on trade.
Brent has gained 5 percent since the beginning of the year, picking up from its late-year surge.
Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day.
China wants its own currency, the yuan, pegged to the dollar.
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