The Blubber

China may be the source of surging US bond yields as Beijing dumps Treasurys, per BI.

US bond yields have recently experienced a notable surge, and a potential catalyst for this trend may lie across the Pacific Ocean: China.

Certainly, US inflation continues to exceed the Federal Reserve's comfort threshold, leading central bankers to advocate for additional rate hikes, consequently contributing to a sell-off in Treasurys.

On Tuesday, the yields on 10- and 30-year Treasurys reached their highest points since 2007, fueled by job-opening data indicating sustained tightness in the labor market.

However, in a blog post, Torsten Sløk, the chief economist at Apollo Global Management, directed attention beyond the confines of the US economy.

Sløk remarked, "Perhaps China is influencing the upward trajectory of US long rates." He elaborated on China's decelerating growth due to cyclical and structural factors, resulting in reduced Chinese exports to the US and, consequently, fewer dollars available for recycling into Treasuries.

Since 2021, China has divested itself of $300 billion in US Treasurys, with the pace of sales accelerating notably in recent months, amounting to $40 billion since April of the current year.

This observation carries weight, especially considering that, as of March, China held the position of the second-largest foreign holder of US Treasury securities, as per Treasury Department data. It's noteworthy that approximately a decade ago, China was accumulating Treasurys before a shift in trend.

In addition to economic considerations, China's recent divestment of US Treasurys is also influenced by its efforts to support the yuan, which has been experiencing a weakening trend against the dollar.