Summary:

• China reports that it may slow down or even halt US bonds purchases
• US dollar slumps while the US bond yields extend their gains

The macroeconomic calendar is relatively empty today but it does not mean calmness across financial markets. While the US dollar was slowly recouping its losses Bloomberg reported that China’s officials have recommended slowing or halting purchases of US government bonds. In effect, the US 10Y yield soared roughly 5 basis points reaching almost 2.6%, the highest in over 10 months.

The main reason for the call is less attractiveness seen in the US bond market undermined by debt supply and trade tensions. Notice that China is already heavily invested in the US Treasuries and would inflict self-harm with a sudden stop of purchases. Traders begun quickly selling off the US dollar pushing the EURUSD back to a 1.20 handle. At the time of writing the greenback is by far the weakest currency in the G10 basket while the Japanese yen leads the gains being up more than 1%. To sump up, even as the idea of a crash in the US bond market seems to be quite remote (a sudden stop of purchasing US bonds appears to be unlikely) bond traders have to be outstandingly cautious given high valuation of global bonds.

The USDJPY plunges following the headline that China may halt US bonds purchases. The pair easily broke through a support placed at 112 and it seems that a zone nearby 111 is currently the last resort for buyers. Source: xStation5