China's central bank announced on Saturday that they will adjust the yuan-dollar exchange rate. Unfortunately they didn't provide much of a time table or explain by how much.
As the market digests the potential effects, some are worrying that U.S. treasuries could be slammed, sending yields higher. Why? Because that's what happened in 2005:
Adding to market tensions, the surprise move on Saturday occurred before next week's sales of $108 billion in shorter-dated debt by the U.S. Treasury and a Federal Reserve policy meeting this week.
In July 2005 when China abandoned its peg against the U.S. dollar and moved to a managed float, there was a sharp sell-off in U.S. Treasuries, a reaction that some analysts say could happen again.
"The knee-jerk reaction was a 10 to 15 basis point increase in yields. That was one of the biggest moves of the year and it continued to rise for two to three weeks thereafter," said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York.
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