Investors are failing to factor in the very real risk of China scaling back on its U.S. government debt holdings, economist Stephen Roach told CNBC.
“Everyone thinks interest rates are going to stay low in the U.S. because the Fed is in the control room… but the Chinese own about 11 percent of the Treasury market right now, and as they start to reduce their purchases of dollar-based assets… [this] will mean higher interest rates,” he told CNBC Asia’s Squawk Box.
The political crisis in Washington that saw a 16-day partial U.S. government shutdown damaged the perception of the U.S. government’s credibility abroad, analysts say, prompting fears that China may reassess its investment in U.S. Treasurys.
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