Investors remain skeptical that Beijing will retaliate against the U.S.’s tariffs by selling its stockpile of Treasurys.
Amid an escalating, tit-for-tat trade battle, some investors fret China could be tempted to sell a large chunk of its stockpile of Treasurys in a bid to raise U.S. government’s borrowing costs when Washington is contending with trillion dollar annual deficits.Hu Xijin, the editor in chief of Chinese state-owned newspaper The Global Times, tweeted on Monday that Chinese scholars had discussed selling the country’s stockpile of Treasurys as one potential option to retaliate against the U.S.
More recent, rumors abounded that the lackluster showing in last week’s Treasury auctions to fund the U.S. government over the next two quarters may have been due to China, the U.S.’s biggest creditor, curtailing its purchases of debt, said market participants. An escalation of trade tensions and the increased headwinds they would present to a rebound in global growth would prompt investors to take shelter in haven assets such as U.S. government paper. A heightening of trade tensions would thus offset any move by Beijing to pressure U.S. borrowing costs higher.
China has sold a sizable portion of its Treasury stockpile back in 2015-2016, when domestic growth was slowing and raising concerns around the health of the global economy. Self-defeating tactic Even if paring back its presence in the Treasurys market lifts U.S. borrowing costs, the retaliatory move would also erode the value of the mainstay of China’s foreign reserves. Guy LeBas, a fixed-income strategist at Janney Montgomery Scott, argued such a move would be akin to cutting off one’s nose to spite the face:
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