|Bid||0.00 x 0|
|Ask||0.00 x 0|
|Day's Range||10.22 - 10.45|
|52 Week Range||10.10 - 12.70|
|Beta (3Y Monthly)||0.88|
|PE Ratio (TTM)||4.64|
|Forward Dividend & Yield||0.68 (6.60%)|
|1y Target Est||N/A|
(Bloomberg) -- A specter is supposedly haunting U.S. bond markets: The prospect that China, which holds $1.11 trillion of Treasuries, could weaponize them in its trade war with President Donald Trump.With U.S. 10-year yields plunging toward 2%, the day after the Treasury said Chinese holdings shrank to a two-year low, the phantom is looking a bit faint -- and a closer look at the data may help to dispel it altogether.The concern is that if the People’s Bank of China decided to dump Treasuries, it would send U.S. interest rates spiking higher, just when Trump’s administration is borrowing more.A real-time experiment provides some evidence of what happens when a major central bank cuts back on its Treasury holdings. In this case, the actor is America’s own Federal Reserve.The Fed has shed about $350 billion in U.S. government debt from its balance sheet since late 2017. There’s been little sign of alarm on bond markets. More like the opposite. For most of the past year, yields have been falling -- more or less in lockstep with the Fed’s offloading.Not DependentThe portfolio trim -- known as quantitative tightening -- hasn’t involved selling bonds into the market, as the Fed’s Chinese counterpart potentially could. Still, the operation might have been expected to push yields up.That’s because when the Fed was keeping its balance sheet steady, it made purchases via non-competitive bids outside of the main auctions, to replace its maturing holdings. When it stopped doing so, the result was a funding gap for the U.S. Treasury -- one that had to be filled by selling more debt to someone else.Which, it turned out, wasn’t a problem.The idea that the U.S. is dependent on foreigners to float its deficits has been quietly taking a hit too. Overseas central banks haven’t been significant net buyers for a while.As government bond sales break records, it’s mostly been private domestic investors who snapped them up, with the Fed out of the game and its foreign counterparts largely on the sidelines.The picture is even clearer when looking at foreign holdings as a proportion of America’s national debt, instead of dollar numbers. The share has steadily declined.China is still America’s biggest creditor, according to the latest data. But its portfolio of Treasury bonds, notes and bills has shrunk to 17% of the total amount of those securities held overseas -- or 5% of the overall national debt.The debt holdings trimmed by the Fed represent only about one-third of what the PBOC could potentially unleash. Rumor that China might slow or halt its purchasing of Treasuries, let alone sell them, has caused market flutters before.But few analysts think that Chinese dumping is a plausible scenario. Some question whether it would be in China’s interests -- or if the move might ultimately rebound in America’s favor.To be sure, ever-larger deficits could eventually push markets to a tipping point. So far, though, the demand for U.S. government debt has proven durable, even without the Fed and other central banks as big buyers.That’s been a corrective for economists who were convinced that more borrowing would inevitably spell higher yields -- and a damper for some of the alarm bells about debt dependence on foreigners.\--With assistance from Liz Capo McCormick.To contact the reporters on this story: Alex Tanzi in Washington at email@example.com;Ben Holland in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Alex Tanzi at email@example.com, Sarah McGregorFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
“If he shows up, good,” Trump told Fox News on Friday. “If he doesn’t -- in the meantime, we’re taking in billions of dollars a month.” He added: “Eventually, they’re going to make a deal, because they’re going to have to. Trump has repeatedly threatened to raise tariffs if Xi doesn’t meet with him at the G-20 leaders’ meeting June 28-29 in Osaka, Japan.
It’s an inconvenient truth for the U.S. in its escalating trade war with the world’s only other economic superpower, and one that could complicate the president’s efforts to use tariffs as way to pressure America’s major trading partners into making concessions. After Trump raised tariffs on $200 billion of Chinese imports last month, the yuan quickly fell toward 7 per dollar -- a level not seen since the financial crisis. The drop effectively reduced the price of Chinese imports in dollars and has blunted the cost shock of higher tariffs.
Economics Nobel Prize winner Paul Romer, Federal Deposit Insurance Corp.’s former Chair Sheila Bair, and Mizuho Financial Group Inc.’s Chairman Yasuhiro Sato are among speakers at the Lujiazui Forum on Friday. On the list of topics: How should China choose the path and pace of its financial opening?
New research by Bloomberg Economics shows that the influence of food prices in general is declining, as the nation becomes wealthier and spends a greater share of income on other things. While the Consumer Price Index used to be jokingly called the ‘Consumer Pork Index,’ that’s less accurate these days.
The People’s Bank of China set its daily reference rate for the currency at higher than market watchers expected for a 10th straight day on Wednesday, the longest run since September. The strong bias on Tuesday was the largest since Bloomberg began releasing fixing forecasts in August 2017. The central banks also announced plans to sell bonds in Hong Kong in June -- which would support the offshore rate.
President Donald Trump is eager to crow about the economic weapon he wielded against Mexico to win concessions on immigration: “Tariffs are a great negotiating tool,” he declared Tuesday. Now, Trump says, it’s China’s turn to cower. Trump is seeking to increase pressure on Xi Jinping, his Chinese counterpart, before this month’s G-20 summit, but Trump may already have pushed too far.
The Federal Reserve is being outgunned on Twitter by critic President Donald Trump even as it leads the way among central banks in embracing social media in a bid to better inform the public about its decision-making. The Fed has about 520,000 followers, and its New York district bank around 140,000, compared with Trump’s 61 million, according to a study published on Wednesday by research group OMFIF. The Fed’s most popular tweet ever only got 492 retweets, although the St. Louis Fed is the most active monetary authority worldwide with an average of almost nine tweets a day.
“The Fed interest rate way too high, added to ridiculous quantitative tightening! They don’t have a clue!” Trump said on Twitter, renewing his complaints about the U.S. central bank a week before it meets in Washington to discuss monetary policy. Trump’s tweet on the euro appeared to have been prompted by a Bloomberg Opinion piece on Europe bracing for a summer of “overtourism,” to which the president linked as he refreshed his vexation over the dollar’s value against its rivals. Larry Kudlow, director of the White House National Economic Council, later said the president wasn’t trying to talk down the U.S. currency.
The People’s Bank of China set its reference rate at 6.8930 per dollar Tuesday, 0.2% higher than traders’ and analysts’ average forecast of 6.9089. The strong bias in the daily fix -- which restricts the onshore yuan’s moves by 2% on either side -- is the largest since Bloomberg started releasing the survey estimates in August 2017. The central bank also said it plans to sell bills in Hong Kong later this month, a move that will drain liquidity and support the currency.
China’s yuan may be entering the final leg of its journey toward 7 per dollar. Bearish technical signals and dovish comments from the People’s Bank of China are adding pressure to the currency, only weeks after yuan watchers speculated the central bank was helping limit depreciation. China’s currency became a barometer of stress for traders around the world in May, when tensions between the U.S. and China unexpectedly escalated.
“The head of the Fed in China is President Xi,” Trump told CNBC television in a telephone interview Monday. The People’s Bank of China lacks the political independence of counterparts like the Fed, meaning Chinese President Xi Jinping and his colleagues must approve major PBOC decisions.
The BOJ will ease further if momentum toward its 2% inflation target is lost, Kuroda said in an interview with Bloomberg TV’s Kathleen Hays in Fukuoka, Japan, where central bankers and finance chiefs from the Group of 20 met over the weekend. The governor emphasized that the BOJ doesn’t need to act now, citing the health of the economy. Kuroda’s comments come after Federal Reserve Chairman Jerome Powell signaled a willingness to act if the economy needs it, European Central Bank President Mario Draghi vowed to support growth and People’s Bank of China Governor Yi Gang told Bloomberg in a separate interview that he has "tremendous" policy options to stoke demand.
The People’s Bank of China increased its bullion reserves to 61.61 million ounces in May from 61.10 million a month earlier, according to data released on Monday. The rise reflects the government’s “determined diversification” away from dollar assets, Argonaut Securities (Asia) Ltd. analyst Helen Lau said, adding that retail demand has also picked up. At this rate of accumulation, China could buy 150 tons in 2019, according to Lau.
Key InsightsThe reading is slightly higher than the median estimate of $3.09 trillion in a Bloomberg survey of economists “There may be some forex outflow pressure - one piece of evidence was that the renminbi fixing rates came in significantly stronger than the forecasts over the past few weeks,” according to a note written by China International Capital Corp economists including Eva YiA worsening trade war and slowing Chinese economy caused a rapid sell-off in the yuan last month and pushed it to near a level not breached since the global financial crisis.
A whirlwind of Federal Reserve speakers this week — including dueling tones from St. Louis Fed chief James Bullard and San Francisco Fed President Mary Daly — culminated in the Fed’s Nos. On the other side of the U.S. trade war is China. In an interview with Bloomberg, People’s Bank of China Governor Yi Gang said the central bank has ``tremendous’’ room to adjust monetary policy if needed.
Mnuchin’s meeting with Yi Gang, the governor of the PBOC, will take place as the U.S. and China’s trade conflict becomes increasingly bitter after talks between the two countries broke down last month and President Donald Trump imposed further tariffs on Chinese goods. Both sides have blamed each other for the impasse, which will be a major theme for finance ministers and central bankers from the G-20 economies to discuss over the weekend in Fukuoka.
The former Vodacom Group Ltd. executive was brought in about 18 months ago to lead a recovery at the airline, which has been unprofitable since 2011 and mired in mismanagement and corruption scandals. Finance Minister Tito Mboweni has made clear the government is reluctant to approve a further outlay, saying he favors shutting down the company.
Stocks fluctuated before closing slightly lower and the yuan pared a drop as many observers interpreted weakness in the economy as a sign the government will roll out some stimulus. Data released Friday morning by the National Bureau of Statistics showed that China’s manufacturing purchasing managers’ index dropped to 49.4, worse than the 49.9 forecast in a Bloomberg survey of economists. Citic Securities Co. and Bank of America Merrill Lynch have already flagged the possibility that China could cut the reserve requirement ratio as liquidity tightens.
Ahead of the G-20 summit on June 28, China’s top bureaucrats will have to decide if they have the stomach for austerity. The PBOC’s every move, from daily open-market operations to bad bank cleanups, will be watched carefully. If the central bank conducts large-scale liquidity injections to shore up the economy, it will push down onshore interest rates, weakening the yuan.
The fund manager is shorting U.S. two- and five-year notes on expectations growth in the world’s biggest economy will remain robust, according to Adam McCabe, Singapore-based head of fixed-income for Asia and Australia. Aberdeen’s conviction comes even as Treasury 10-year yields have dropped to the lowest since 2017 and a key part of the yield curve has inverted, signaling the U.S. may be headed for a recession.
The money manager, which oversees $72 billion, is banking on this view to short the greenback and buy some of the biggest casualties of the trade war, including the Australian dollar. Trump will be compelled to make peace with Beijing to protect the interests of American consumers. “The tariffs are essentially a tax on the U.S. consumer,” Richard Lawrence, a money manager at Brandywine Global, said in an interview in Singapore.
China’s central bank injected a net amount of 150 billion yuan ($21.7 billion) through open-market operations on Monday and Tuesday, the most since the week ended March 8. Regulators announced Friday that they will take control of Baoshang Bank Co. citing “serious” credit risks, fueling worries of failures elsewhere and driving up funding costs. The benchmark 7-day repo rate rose further Tuesday to the highest in more than a month, in spite of the central bank’s efforts to calm interbank markets.
It’s far from clear that regulators have the right supplies to finish the job. While a broader effort to rein in shadow-banking activity has been going on for several years, regulators haven’t assumed control of a bank in this way. In 2015 and 2016, they recapitalized lenders by injecting share capital while writing off or transferring troubled assets. To begin with, there’s the concern of direct contagion. Baoshang’s assets of 576 billion yuan ($84 billion) are a drop in the ocean for a banking system with about 270 trillion yuan of assets.
China's currency will probably weaken beyond 7 per U.S. dollar because economic conditions warrant it and the policy response encourages it. Despite the parlor game among some market participants about the desire or ability of the People's Bank of China to keep the yuan above that level, it lacks long-term perspective: China’s growth is slowing and the exchange rate ultimately will reflect that. This cooling expansion reflects trends underway long before President Donald Trump took office.