China urged banks to cut US treasury exposure. Why it didn’t spook the bond market.

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Treasuries. The yield on the 10-year Treasury note ended Monday at 4.201% or slightly lower than it was the day before, after briefly inching up earlier in the day. The 4.2% level has become an anchor for the market, with yields barely diverging from that point since mid-January.

Prices and yields move in opposite directions. The market’s relative inertia is remarkable given that Beijing advised some of its biggest banks in recent weeks to limit purchases of Treasuries or pare down their holdings, according to a Bloomberg story citing people familiar with the matter. Chinese regulators framed it as a way to diversify market risk without giving the banks any specific time or size to disinvest, the story mentioned.

Any ‘quiet quitting’ by Chinese banks would add to growing concern that foreigners are exiting the Treasury market because of worries over the staggering size of U.S. debt. The more the debt supply, the higher the anxiety the U.S.

won’t be able to pay back its lenders. Growing tensions with other countries on policies proposed by President Donald Trump add to the risk. Yet, the threat appears less daunting when put in context.

China’s banking sector has $297.8 billion in dollar-denominated bonds, according to the State Administration of Foreign Exchange. While this likely includes U.S. Treasuries, it doesn’t specify what portion consists of Treasuries versus corporate or other foreign dollar-denominated bonds.

Losing this source of demand would be a blow to the $30.3 trillion U.S. Treasury market, but the impact remains difficult to measure. Another reason for the lack of