A Pacific Investment Management Co (PIMCO) sign is shown in Newport Beach, California August 4, 2015.
The report sent USA 10-year Treasury yields to 10-month highs and dented the dollar on Wednesday, which slid almost 1.1 percent on trading platform EBS, its biggest one-day percentage fall versus the yen since last May.
SAFE officials noted that "the handling of China's foreign reserves investment in U.S. bonds is professionally managed according to market activity, on the basis of market conditions and investment needs". The increase came as the size of the USA debt market more than tripled to $14.5 trillion.
The yen has been buoyed this week after a cut in the Bank of Japan's bond buying on Tuesday fuelled speculation that the central bank could eventually seek to exit from its stimulus later this year, following in the footsteps of other major central banks.
U.S. Treasury yields fell after China disputed a report that its government officials had recommended the country slow or halt its purchases of the U.S. bonds.
China very deliberately holds $1.2 trillion of USA debt and by doing so makes a relatively risk-free investment, while sending the United States a political message that they have a hold on U.S. life-lines, the flow of money into its veins.
The US 10-year Treasury yield edged down to 2.5366 percent from Wednesday's close of 2.549 percent, while the dollar gained 0.3 percent to 111.72 yen after the regulator's comment. The yuan gained around 6.8 percent versus the dollar previous year.
The US dollar fell, as did US bonds and stocks. The latest data from the Treasury Department puts it at $1.2 trillion - and some independent estimates suggest it could be even higher.
"A lot of the speculative accounts started to pile into the flattening trade; there was this bandwagon effect", Kohli said. "This is likely a warning shot that can lead to a bit of volatility short term". "Doubts about (U.S. bonds) allure should not be overblown as threat of imminent dumping".
Others are not so sure.
China added to bond investors' jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.
He added the 25-year trend lines had been broken in five- and ten-year Treasury maturities.
"With markets already dealing with supply indigestion, headlines regarding potentially lower Chinese demand for Treasuries are renewing bearish dynamics", said Michael Leister, a strategist at Commerzbank AG.
The knee-jerk reaction for bond-bears was to sell bonds, but a strong U.S. treasury auction and cool analysis from some strategists prompted a turnaround. In an interview with Bloomberg, he said that there appears to be a "negative type of posture for bonds".
The retail sector was mixed after the Australian Bureau of Statistics said sales rose 1.2 per cent in November, driven by the release of the iPhone X and promotions such as Black Friday.
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