Quick Take: Chinese Regulator Denies Curbing US Treasury Purchases

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The tightening effect of such measures would likely have an impact on how many times the Fed raises interest rates this year, which is why we've seen a corresponding drop in the dollar.

The yield on 10-year U.S. Treasury hit a 10-month high, while the dollar slumped against a basket of currencies following the Bloomberg News report.

The S&P 500 pared some losses after falling as much as 0.6 percent after the report, which also pushed the dollar down. The dollar weakened. And the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT) fell below its 200-day moving average for the first time since May.

But in practice, the People's Bank of China has fewer choices over the size of its foreign exchange purchases than is assumed by many, says research company Capital Economics.

United States investors were spooked by a Bloomberg report, based off an anonymous leak, that China may slow down - or even stop - its buying of USA government bonds.

There is of course a historical precedent of such tactics backfiring on those who employ them.

"As the day wore on, Treasury yields started to move lower on the realization the story doesn't have any legs".

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They also blocked main road for traffic, demanding to hang the culprit in public so that no such incident will happen in future. Sajid said that up to 20 suspects had been apprehended "but the investigators have been unable to find any clue so far".

The Gordon Brown example highlights why Commonwealth Bank of Australia is saying Wednesday's reports over China and its US Treasury holdings are unreliable. The justice ministry has taken the sternest stance on digital currencies among South Korean ministries but other government agencies reportedly oppose an outright ban on bitcoin and other virtual currency trading. So, the idea of China simply halting the purchase of US bonds is humorous.

The Chinese officials, who were not named, said the market for USA government bonds is becoming less attractive relative to other assets, according to the report. In November, the U.S. formally opposed granting China market economy status under the World Trade Organization, a move that makes it more hard for other countries to impose anti-dumping measures on cheap Chinese imports.

Gold futures surged on Wednesday, hitting its highest level since September 15 as investors reacted to a plunge in the U.S. Dollar.

A shrinking pile of overall foreign exchange reserves could mean lower demand for USA bonds. Oh, and if memory serves, China has been talking about this type of diversification for as long as I can remember.

If central bank reserves are to be truly diversified, or bare any resemblance to the shape of the global economy, then reserves managers have to keep pace with this trend. "A significant change in policy could put considerable upside pressure on USA yields". However, we believe USA inflation pressures are picking up. That's just how markets work.

China holds $1.2tn in US Treasuries and there are no bond markets that offer the same kind of depth or liquidity for a holder of that size.

'While it seemed to come as a surprise, it's worth noting that the absolute purchase level was still within the Bank of Japan's target range of purchases, ' he said. The bear market was confirmed this week as rates on the 10-year passed 2.5 per cent, he tweeted on Tuesday.