China is the largest foreign holder of USA government debt, with $1.19 trillion in Treasuries as of October 2017, according to the Treasury Department.
Investors started the New year optimistic about global growth prospects and with high expectations for a strong USA quarterly earnings season which kicks off on Friday with reports from big banks.
The yield on the benchmark 10-year U.S. Treasury note shot to a 10-month high of 2.59% in London, before retreating later in the day and ending roughly unchanged in NY. The biggest change in Treasury holdings came from the US Federal Reserve, which increased its net holdings by almost US$1 trillion under its quantitative easing program, not to mention a couple of trillion dollars of mortgage-backed securities. It isn't clear whether the recommendations of the officials have been adopted, Livemint reported. Gold traded higher, despite the fact that yields across the curve moved higher.
The dollar has been struggling to gain traction in the opening days of 2018 after losing around 10 percent against a basket of currencies previous year as economic growth elsewhere, notably Europe, overtook the U.S.
And three, the Federal Reserve is actively working to lift interest rates at a time when the stock market's performance is increasingly reliant on the flow and availability of cheap credit via debt-funded share buybacks and M&A activity.
"With bond yields going up so steadily and looking like they're going higher that could be a bit of a headwind given the fact that gold is a non interest-bearing asset", said Bill O'Neill, partner, co-founder of LOGIC Advisors in Upper Saddle River, New Jersey.
However, Chris Iggo, fixed income chief investment officer at Axa Investment Managers, said that while bonds are expensive, there was no immediate catalyst for lower prices across the board.
It is not the first time that the market has been gripped by fears of China dumping US debt. The same is potentially true for traders and investors, because people tend to stick with what's tried and true.
European shares fell, with most sectors except financials in the red as concerns grew over the direction of the bond market.
The 10-year yield moved above 2.5 percent earlier Tuesday before paring its gain, and then resumed its upward shift in US trading hours, making fresh highs. All we have seen in the Treasury market is an adjustment to higher oil prices. Crude reached $63.60 a barrel early Thursday, the highest price since late 2014 for a front-month USA futures contract.
Against a basket of currencies, the dollar was down 0.15 percent.
"To date, USA inflation pressures have remain muted". November's PPI might have made some people sit up and take note, as it rose 0.4% (with core PPI that strips out food and energy rising 0.3%).
US issuance is expected to rise in 2018 on the back of the budget deficit and recently passed tax legislation. "In addition, the support of the Fed's balance sheet to the UST market is slowly eroding".
Investors monitor stock prices in a brokerage house in Beijing on January 2, 2018.