Geithner takes jab at China

Treasury Secretary-designate Timothy F. Geithner on Thursday accused China of “manipulating” its currency, raising the risk of a new U.S.-China trade row.

Geithner’s comments helped spark a jump in Treasury bond yields, on fears that a trade dispute could dim China’s appetite for Treasury debt -- at a time when U.S. financing needs are skyrocketing as the Obama administration ramps up spending to bail out the economy.

In written testimony to the Senate as part of his confirmation hearings, Geithner said: “President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”

China’s U.S. critics have long asserted that by keeping its currency undervalued, China keeps prices of its exports artificially low, at American manufacturers’ expense.

But the U.S. also has been dependent on China and other foreign investors to buy Treasury securities and thereby fund the federal deficit.

The yield on the 10-year Treasury note rose to 2.59% on Thursday, up from 2.52% on Wednesday and the highest since Dec. 11. The 30-year T-bond yield jumped to 3.25% from 3.14% a day earlier.

Geithner’s comments “weighed on the Treasury market amidst concerns the statement could encourage China to diversify out of Treasuries,” said Meg Browne, a currency strategist at Brown Bros. Harriman & Co. in New York.

Treasury yields have rebounded this year from record lows in December. The 10-year T-note bottomed at 2.06% on Dec. 30.

Many market pros had expected some backup in yields just given the heavy calendar of Treasury bond offerings this quarter, including the sale next week of $40 billion in two-year notes and $30 billion in five-year notes.

Geithner just gave potential bond buyers something else to worry about, analysts said.

Rising Treasury yields threaten to push up other interest rates -- including on mortgages, at a time when many Americans are desperate to refinance their home loans. The average 30-year mortgage rate nationwide rose to 5.12% this week from last week’s record low of 4.96%, Freddie Mac reported Thursday.

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tom.petruno@latimes.com