The report, published by Bloomberg on Wednesday, cited unnamed sources as saying that government officials reviewing China's foreign exchange holdings had recommended slowing or even halting the accumulation of US Treasuries.
Between July 1999 and March 2002 the United Kingdom government sold 395 tonnes of gold at a series of auctions only before doing so, the Labour Party's then-Chancellor Gordon Brown made details of the forthcoming sales public.
But any attempts to use that power could hurt the dollar, damaging China's own USA holdings.
A forthcoming decision from Washington over whether to impose sanctions against China for its trade practices and alleged failure to enforce worldwide sanctions against North Korea may also have been at play.
On Wednesday, Bloomberg, citing unidentified people familiar with the matter, said China found that US bonds were becoming less attractive and that trade tensions with the USA could provide a reason to stop buying American government paper.
"While U.S. -China tensions are rising, it is very unlikely that China would slow its purchases of U.S. Treasuries to warn the Trump administration against aggressive trade measures", analysts for the political risk consultancy, including Asia Director Michael Hirson and Global Strategy Director Karthik Sankaran, wrote in a note Thursday.
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The greenback extended losses after data showed US producer prices fell for the first time in almost 1-1/2 years in December amid declining costs for services.
Of course, regardless of the eventual reason behind such a move, the idea that China's holdings of USA bonds won't still shrink coud turn out to be wrong.
China has been diversifying its foreign currency reserves investments to help "safeguard the overall safety of foreign exchange assets and preserve and increase their value", the SAFE said. Indirect bidders-a proxy for foreign investors and central banks-snapped up 71.5% of the auction. What's more, the Federal Reserve plans to keep hiking rates with a growing economy near full employment.
Nearly nine years ago, at a time when yields were already heading higher and the US was issuing a record amount of debt to finance stimulus measures, then-Premier Wen Jiabao added fuel to the selloff by saying he was "worried" about the safety of the securities. "It's challenging to find any real substantial alternatives", with China earning dollars - the flip side of the USA current account deficit. That prompted a sell-off of US government debt in global markets. That's just how markets work.
"If the PBOC were to precipitate a large sell-off by retreating from the US Treasury market, the value of its existing reserve would fall". The session high for the global benchmark was US$69.37, highest since May 2015. The Fed is also expected to raise rates three times this year.