Treasury Market's China Tailwind Is Fading at the Wrong Time
- U.S. issuance set to rise to finance Fed taper, budget gaps
- Yet a stable yuan suggests China demand for Treasuries may ebb
Pedestrians walk past the People's Bank of China headquarters in Beijing.
Photographer: Qilai Shen/BloombergThis article is for subscribers only.
China’s appetite for Treasuries may be about to ebb just as America needs its biggest foreign creditor to step up and help finance a growing budget deficit. U.S. borrowing costs could rise as a result.
In the view of Wells Fargo, this year’s resurgence in Chinese buying of Treasuries is likely to peter out as the yuan stabilizes after a steep gain in 2017. Most analysts see little change in the yuan through 2018, from its current level of around 6.62 per dollar. A steady exchange rate suggests limited pressure on Chinese authorities to increase their Treasury holdings as part of intervening in currency markets.