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Trade War May Yet Spur China to Sell Treasuries as Yuan Tumbles

  • Beijing could tap reserves to buoy yuan, avert capital flight
  • Treasury yields remain low as investors seek haven from tumult
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The idea that China would dump its $1.1 trillion of Treasuries to retaliate against U.S. tariffs is often dismissed as improbable. It’s seen as a nuclear option that would inflict more harm on China’s economy than America’s.

Yet the tensions rippling through global financial markets could still lead Beijing to reduce its stockpile in the $15.9 trillion Treasuries market -- not to retaliate, but to defend its currency if it goes into a free-fall. The offshore yuan has slumped 2.6% this month to about 6.92 per dollar as the trade standoff intensified, reaching the weakest since December.