China is reportedly thinking of halting US Treasury purchases and that's worrying markets right now

China, the biggest buyer of U.S. sovereign bonds, could be slowing down or even halting its purchases, according to a report.

Bloomberg News reported Wednesday, citing people familiar with the matter, that officials in Beijing have recommended the Chinese government lower — or even stop — its buying of U.S. sovereign debt.

The report also notes that Chinese officials think U.S. debt is becoming less attractive compared with other assets, adding that trade tensions between the two countries could provide a reason to slow down or halt the purchases.

"If China stops buying Treasuries, the market could suffer," strategists at Jefferies said. "Treasury financing needs are going to rise significantly in 2018 and beyond relative to recent history, so Treasury is going to be looking for as many sources of demand as they can find."

The news is worrying markets.

Treasury prices fell, boosting yields. The U.S. dollar also fell against most currencies and gold increased. U.S. equities declined.

"I think the Chinese will contribute to the removal of liquidity from the U.S. bond market," said Michael Shaoul," chairman and CEO of Marketfield Asset Management. "That's not helpful to a bond market that's already under pressure."

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

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