China may sell off Treasuries to support yuan.
China may sell off Treasuries to support yuan. Bloomberg cited reports saying the PBOC will want to keep the currency stronger than 7 per dollar, a level unseen since the financial crisis, as a break may lead to a "vicious cycle". of capital outflows and sharper depreciations and the Chinese government has the potential to cut back on its Treasury purchases or even cut its holdings. Such a move was speculated to be part of retaliation measures following President Trump's latest tariff hike, but Bloomberg highlighted that China previously pared its Treasury stake in 2016 and 2018 amid speculation both times that it was trying to prop up the currency. So similar action now could be sold as a way to underpin forex markets. Indeed, the possibility of intervention by the Chinese central bank seems already have an impact and Bloomberg reported that traders appear reluctant to short the yuan aggressively, after having been burned by PBOC action in the past. China's foreign spokesman Geng was quoted as saying that the country doesn't want to engage in a trade war but "isn't afraid of one", although Blackrock argue that the probability of China selling off all or most of its Treasury holdings is slim as U.S. government debt is one of the highest yielding risk free assets possible.