According to a new report, senior government officials in Beijing, China are reviewing the nation’s foreign-exchange holdings, and have suggested either slowing or halting purchases of U.S. Treasuries.

Citing “people familiar with the matter,” Bloomberg reports that the suggestion comes as global debt markets have begun selling as there are signs that central banks are “starting to step back after years of bond-buying stimulus.”

China holds $3.1 trillion in foreign-exchange reserves, the world’s largest holding. They regularly assesses the strategy for investing them.

It isn’t clear whether the officials’ 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. 

“With markets already dealing with supply indigestion, headlines regarding potentially lower Chinese demand for Treasuries are renewing bearish dynamics,” said Michael Leister, a strategist at Commerzbank AG. “Today’s headlines will underscore concerns that the fading global quantitative-easing bid will trigger lasting upside pressure on developed-market yields.”

According to the report, the unnamed Chinese officials did not specify why trade tensions might spur a cutback in Treasuries purchases, and China’s State Administration of Foreign Exchange didn’t reply to a request for comment.

The U.S. government debt market, which sits at $14.5 trillion, is the world’s largest.

“The U.S. Treasury market is a deep, robust market within the world and so we are confident that our economy, with the economy strengthening, that it will remain a deep, robust market,” said Under Secretary for International Affairs David Malpass.

In November, the Treasury Department said borrowing needs will increase again, as the Federal Reserve reduces its balance sheet and as fiscal deficits look set to widen, according to Bloomberg.

“If China ceases to be a net purchaser of U.S. Treasuries, this is unlikely to have a significant impact on the overall yield curve unless China divests a large share of its total holdings in a short time period,” said Rajiv Biswas, Singapore-based chief Asia-Pacific economist at IHS Markit.

Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.

Yields were already climbing this week amid expectations the improving global economy will boost inflation pressures round the world, just as major central banks scale back their asset purchases.

Markets are also braced for a deluge of debt supply this week. The U.S. is scheduled to reopen $20 billion of 10-year debt Wednesday, followed by $12 billion of 30-year bonds Thursday. Germany sold 4.03 billion euros of 0.5 percent 10-year bonds Wednesday with syndications in Italy and Portugal to follow.


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