Reply #56: Treasurys find relief as China clarifies policy

[UpInArms]

Details in consumer confidence report prove offsetting

http://www.marketwatch.com/news/story.asp?guid=%7B875DCCE8%2D6F50%2D4F11%2D94DA%2D112D219ACF97%7D&siteid=mktw

CHICAGO (MarketWatch) - The benchmark 10-year Treasury note edged higher Tuesday as the bond market grew more confident that the impact from a Chinese currency revaluation in cutting that nation's demand for U.S. bonds would be limited.

The closely-tracked 10-year government note was last 3/32 higher at 99 3/32.

The slim gain in price dropped its yield ($TNX: news, chart, profile) to 4.24% vs. 4.25% Monday.

The dollar was higher against its Asian counterparts, trading near levels seen last week before the Chinese central bank unpegged the yuan from the dollar, opting instead to let its currency float in a narrow band against a basket of currencies.

The Chinese central bank said Tuesday that any notion that last week's revaluation was only an initial adjustment isn't correct.

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Because its portfolio is heavy with U.S. bonds "it is not in China's interest to sharply curtail or sell off its Treasury holdings," said Mike Ryan, fixed-income research director at UBS, in a note.

Treasury-investment flow data "show that Chinese purchases of Treasury securities have climbed steadily, a trend that we would expect to continue since the currency revaluation seems too small to impact the massive trade deficit with China and the recycling of dollars into the Treasury market," Ryan said.

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Circular logic: Because they have in the past, they will continue in the future?