Recently a senior strategist has informed that bond yields would be increased highly if China decides to bring into effect their nuclear option in the rising trade conflict with US. Giles Keating, senior advisor at Torchwood Capital has told that excess savings of China has been poured in to capital market which has decreased yields. He mentioned that if the scene is now reversed since China is no longer buying the Treasurys, then bond yields should be increased highly.
Such a decision would be a cause for potential threat to provoke the rise in interest rates on debts in US government. This would cause huge destruction to US economy as those had been the standard for measuring all types of loans. However, several other analysts do not believe that this incident might cause harm to US. Neeraj Seth, the head of BlackRock of Asian Credit commented on May 14th 2019 that while China is not stubbornly buying US government notes, it is also not selling actively in the market. He also said that China still has about $1.13 trillion US Treasurys which is a decline of 4% in the period of a year. However, the decline is not really noteworthy.
He further told that China might be searching for other government notes to swap US Treasurys. However, the country’s market does not have ample risk free assets which are of high quality. Macro Strategist at Deutsche Bank, Alan Ruskin said that this decision by China might be way too destructive since theirs is the second largest economy in the world. The dissolution of “Chimerica” involves a backward movement of China from their prime role in supply chains as well as supply of affordable US or global financing. Ruskin mentioned that discarding Treasurys would be damaging for all markets including China’s own reserved assets and more importantly their asset market.