Treasuries fell as markets discount China concerns

January 12
3:24 AM 2016

The US Treasury 10-year notes dropped as concerns about China's latest peg of devaluating Yuan started easing off. The China's currency devaluation is aimed at boosting economy and fresh concerns about it gradually discounted by the market. This has reduced the demand for safe haven assets. 

Treasury prices fell for the first time in seven days. The China's central bank has devalued its currency Yuan for eighth time. The US government securities dropped as China's central government has set the reference rate for Yuan marginally different from Thursday's level. The global markets were under the impression that China's attempt to devalue Yuan further sparked the concerns about the state of economy. 

Bloomberg reports that the US 10- year note yield rose three basis points to 2.18 on Friday in London. The 2.25 percent note due in November 2025 fell by 0.25 percent or $2.50 per $1,000 face amount to 100 21/32. The yield also fell by 16 basis points during the past six sessions. 

Treasuries witnessed a rally in the past six days as China suspended trading in mainland markets for 30 minutes. The latest bout of devaluation in Yuan triggered the selloff. It further increased the concerns about the global growth. 

Investors are gearing up jobs report on Friday to ascertain the possibility of future rate hikes. Treasury prices rose for one week as huge sell off in Chinese markets kept pressure on global market. This situation has forced investors to switch to safe havens such as treasuries and gold, according to MarketWatch.

After eight days of reductions, China set its reference rate marginally changed on Thursday (7 January 2015). However, this reduction in Yuan value has created tremors across the markets. The stability is returning to the equities gradually as the markets started discounting the China concerns. The CSI 300 index added two percent. 

According to a report by Yahoo Finance, the long-date Treasury (TLT) yields were low in 2015 as they rose 20 basis points during the year. The main reason was lack of supply in long-dated treasuries. Analysts opine that long-date Treasury yields could by marginally higher in 2016. Foreign demand or weakening global economy could results in rise in yields. 

It's estimated that China may sell treasuries to raise money to stabilize its markets, forecasts Yoshiyuki Suzuki, head of fixed income at Fukoku Mutual Life Insurance in Tokyo. China's foreign reserves were reduced in 2015 for the first time since 1992, according to People's Bank of China (PBOC). 

The US average hourly wages rose 2.7 percent in December 2015. The wage growth was 2.3 percent in November. The US economy witnessed creation of 200,000 jobs in December from 211,000 jobs in November. "Payrolls should be firm. It could give us a dip to buy," said Kei Katayama, a bond manager at Daiwa SB Investments in Tokyo. Daiwa Investments manage $49.2 billion. 

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