Financial asset prices were unnerved last week by a mere whiff of geopolitics. A news report surfaced from Beijing, later denied, that the Chinese authorities are thinking of buying fewer US government bonds – known as Treasuries. That made global markets jittery, fuelling concerns that one of the most significant trends of the last 40 years, the long-term fall in bond yields, is finally coming to an end. Such a reversal would be a very big deal, possibly sparking a deeply damaging 2008-style market spasm.
Even if the adjustment from ultra-low rates is smooth, rising bond yields still mean higher debt repayments for firms, households and governments, which could stymie growth. And when bond yields rise, of course, their price falls, imposing big capital losses on bondholders, not least pension funds and other institutional savers.
We know China owns around $1,200bn (£880bn) worth of Treasuries,...
Start your free trial of Premium
- Access all Premium articles
- Subscriber-only events
- Cancel any time