China's latest currency move being watched carefully

As with most financial news, there are those that predict doom and those that predict no real change. We'll find out Monday who's right - from Reuters:

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.

Other analysts said China's announcement, which lacks details, will have little impact on bond prices and next week's U.S. Treasury auctions, which consist of $40 billion in two-year notes, $38 billion in five-year debt, and $30 billion in seven-year notes, may be the focus instead.

They said China's latest currency move is part of a gradual process, which has not slowed its accumulation of U.S. Treasuries since 2005.

As of April, China held $900.2 billion in U.S. government debt, ahead of Japan, which owned $795.5 billion, the U.S. Treasury said this week.