China melts reserves will change you bond yields denominated in dollars

Do not expect the sale of US Treasuries for billions of dollars in China lead to higher profitability - at least not immediately - says Goldman Sachs Group Inc.

China's central bank buys and sells yuan dollar assets to support the exchange rate of the shock of devaluation of its currency last month. People's Bank of China reduced by at least $ 100 billion its $ 3.7 trillion of reserve assets / securities including government / the change of currency regime on August 11, according to the assessment of Societe Generale SA.

But the impact of sales of China is not so simple, says in its report Francesco Garzareliy, co-head of market research at Goldman Sachs in London. Changes in the outlook of the global economy led to a change in cash flows, in turn determine the direction of bond yields. Reducing Government of China will affect mostly investors in fixed-income assets, he wrote.

On a longer term basis, the decline in reserves by China and other central banks, which together hold assets of $ 11.4 trillion will affect bonds denominated in dollars, as private investors will eventually turn from debt assets to assets higher risk, says Garzareliy.

China is the largest holder of government securities ($ 1.27 trillion as of June).

The yield on 10-year government bonds was 2.15 percent on Wednesday compared to 1.9% last month. Goldman Sachs predicts that the yield on government bonds will end the year at levels of 2.5%, still well below 3%.

Jr Trader E. Dimitrov