Rising US Treasury yields belie concerns over China dumping US bonds

US Treasury yields rose on Thursday as stocks gained, reducing demand for safe haven assets, after the government sold new 30-year bonds to strong demand, belying concerns that China could dump its huge stock of US treasuries.

The 30-year bonds were sold at a high of 2.98 per cent. Indirect bidders, which included mutual funds and other asset managers, bought a record 66 per cent of the sale.

Treasuries weakened even after a strong $13-billion auction of 30-year debt, the final sale of $58 billion in new coupon-bearing supply this week.

The price to yield ratio of benchmark 10-year notes were last down 15/32 and stood at 2.23 per cent at close, up from 2.18 per cent late on Wednesday.

An offloading of US bonds by China, the biggest holder of US sovereign bonds, could send the bond market crashing and undermine the American economy.

Stock markets have been volatile in the past few weeks over concerns about Chinese and global growth, with equity price moves in many cases leading to bond trading.

Heavy issuance of corporate debt has also weighed on Treasuries this week, with large sales continuing on Thursday after $26.8 billion in investment-grade deals priced on Wednesday.

The fresh bond sale comes at a time when investors continue to focus on the likelihood of the Federal Reserve raising interest rates for the first time in almost a decade when it meets next week.

Investors are divided over whether a rate hike is likely. In fact, expectations that the US central bank will act have fallen since the Fed has not given any strong indication and also due to chorus of protests, including the IMF and the World Bank against such moves.