Chinese report hits dollar hard

London: Major government bond yields hit multi-month highs on Wednesday, extending earlier gains on a report that Chinese officials have recommended slowing or halting purchases of US government bonds.

The yield on 10-year US Treasury hit a 10-month high of 2.59 per cent in European trade and was up 4 basis points on the day, pushing the dollar to a six-week low against the Japanese yen.

“The latest rise (in yields) is caused by the news that Chinese officials are recommending lower purchases of U.S. Treasuries for their FX reserves,” said Mizuho strategist Antoine Bouvet, referring to a Bloomberg report.

“The market is pricing in this possibility, but we still don’t have much have detail on this.”

Germany’s 10-year bond yield hit its highest level since the October European Central Bank meeting when policymakers first announced the extension of its bond-buying scheme, with one trader citing heavy supply as the latest trigger for the move.

A combination of factors has pushed global bond yields higher in recent weeks, with global growth and higher oil prices leading investors to speculate that the world’s major central banks might withdraw from their stimulus programs sooner rather than later. Some investors saw a reduction of bond purchases by the Bank of Japan (BoJ) this week as a potential indication of this.

Meanwhile, Gold jumped to its highest in nearly four months on Wednesday as the report had sparked a broad-based sell-off of the dollar, lifting assets priced in the US currency. The dollar, already under pressure versus the yen, slid 0.6 per cent versus a currency basket, its biggest one-day drop in a month.