TREASURIES-Benchmark yield highest since March on fears over China bond purchases

* China may slow or halt U.S. bond purchases - report

* Yield curve steepens as long-end underperforms

By Karen Brettell

NEW YORK, Jan 10 (Reuters) - U.S. Treasury yields jumped to

10-month highs on Wednesday after Bloomberg News reported that

Chinese officials have recommended the country slow down or halt

its purchases of the U.S. bonds.

China is the largest foreign holder of U.S. government debt,

with $1.19 trillion in Treasuries as of October 2017, data from

the Treasury Department show.

The Chinese officials, who were not named, said the market

for U.S. government bonds is becoming less attractive relative

to other assets, Bloomberg said. They also cited trade tensions

with the United States as a reason to slow Treasury purchases,

the report said.

The report comes amid increasing nervousness about bond

weakness after the Bank of Japan said on Tuesday it will trim

its purchases of Japanese government bonds, raising speculation

it will reduce its monetary stimulus this year.

“People were already jittery about Treasuries,” said Aaron

Kohli, an interest rate strategist at BMO Capital Markets in New (KOSDAQ: 160550.KQ - news)

York, noting the Chinese news is “piling on.”

High profile bond investor Bill Gross of Janus Henderson

Group also said on Twitter (Frankfurt: A1W6XZ - news) on Tuesday that bonds are in a bear

market. Investors are also concerned that companies may reduce

bond holdings if they repatriate funds from overseas following

the passage of the U.S. tax bill.

Benchmark 10-year notes were last down 11/32 in

price to yield 2.584 percent, after rising as high as 2.597

percent, the highest since March 15.

However, with China holding approximately $3 trillion in

foreign exchange reserves, it was not clear what other markets

would be large enough to invest in should China reduce its

participation in the Treasury market, raising some speculation

that the news may constitute some political bargaining.

“Where are you going to put it? Realistically I don’t think

they have much leeway here,” said Kohli.

Underperformance by longer-dated debt on Wednesday was also

attributed to the large number of investors that had bet on

further curve flattening and had to reposition as the trade

moved against them.

The yield curve between two-year notes and 10-year notes

steepened to 62 basis points on Wednesday, and is

up from a 10-year low of 49 basis points on Friday.

(Editing by Chizu Nomiyama)

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