Its easy to me - those countries need the US to recover in the short-term. It is the great nation-building game -
1. Make cheap white goods to sell to the US consumer;
2. Increase foreign currency reserves;
3. Use foreign currency to buy US-gov't treasuries;
4. Treasuries used to build money supply in the US, ending up as debt in the pocket of the American consumer.
5. Repeat ad infinitum.
So those foreign debtors needs 'Joe Average' to be under the illusion that increased money supply is actually wealth in his pocket, meaning he will buy the tripe that is fuelling the third world's nation building.
This is what pulled Japan out of being bombed into oblivion after all - selling consumer trinkets to the Yanks. When they became 'wealthy', they passed the industrial baton to the Chinese.
Question is, what happens when China becomes 'wealthy' (assuming resources don't run out in the process)? Maybe the baton will then pass to the Africans?
So stop buying them and let this market correct Wen Jiabao.
I read somewhere that the US has to sell $60b of treasuries a day to fund the stimulus package. Big bickies. Who buys them if China scales back and at what yield? What then for the bail out?
Watching with interest.
The Age:
China seeks assurances on US debtMarch 13, 2009 - 4:35PM Page 1 of 2 Single page view
China, the US government's largest creditor, is ''worried'' about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.
''We have lent a huge amount of money to the United States,'' Wen said at a press briefing in Beijing today after the annual meeting of the legislature. ''Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets.''
The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction comprised of aggressive bids. A low ratio is an indication of a disappointing auction, marked by a wide bid-ask spread.
The weekly auction is currently $60bn additional bonds on what was already being auctioned, not per day.
There is a pool of bidders, and I am pretty sure bidding is compulsory to be part of the pool.
http://www.federalreserve.gov/monetarypolicy/taf.htm
Results of the latest auction
http://www.federalreserve.gov/monetarypolicy/20090310b.htm
Bid/cover ratio 0.79
From wikipedia
Guys you should not associate treasury yield blow out with the USD crashing and gold prices rising. Because there is a good chance the opposite will happen. USD will sky rocket as USD debts need to be quickly repaid in the high interest rate environment. Gold will become worthless because it has no real utility value.
Hi Bushman,
I predicted massive bond strength over a week ago in the gold thread by comparing 30y yield and gold price decline.
If it's ok with you I will steal your posted article to paste there for the purposes of unseemly gloating
The net supply of Treasurys in 2009 and 2010 combined seems likely to total more than $3 trillion and could climb as high as $4 trillion. The Congressional Budget Office (CBO) estimates the 2009 Federal budget deficit to be $1.2 trillion. The consensus of private sector analysts is similar to that figure. Yet, neither the CBO estimate nor the private consensus reflect fully the funding needs associated with the Obama Administration's fiscal stimulus plans, the implementation of TARP (or another TARP-like program), or the rumored creation of a bad/aggregator bank to help deal with the underperforming assets weighing down financial institutions. Some of the funding of these government programs will spill over into 2010, a year in which the "core" budget position also will be weak according to mainstream expectations for economic performance.
Actual and potential funding needs for financial sector stabilization programs already announced are considerable. Guarantees made on select assets of systemically critical financial institutions could require Treasury to raise hundreds of billions of dollars in the event that these assets continue to deteriorate. Similarly, guarantees made by the FDIC on select bank-issued debt could catapult government borrowing needs further should the issuing bank(s) default on its FDIC-insured paper. Any additional guarantees on future losses to assets held by financial institutions would further increase net borrowing needs by Treasury. The size of any such borrowing would hinge on the type and size of assets backstopped.
The expansion in quasi-government paper contributes to the risk of market saturation. Banks have issued nearly $150 billion in FDIC-backed paper since the programs introduction. Spreads on this paper have been narrowing over time with the latest deal, paper offered by Citi, pricing just 30 basis points over Libor. Real money investors have purchased the bulk of this paper in an attempt to pick up yield over Treasurys while not taking on additional credit risk. In some respects, this paper has replaced GSE debt as the instrument of choice for real money investors looking for modestly higher yielding, quasi-government debt.
"Foreign demand for long-term Treasuries has disappeared over the last few months," writes Brad Setser - an ex-US Treasury and IMF official, former economist for Nouriel Roubini's doom-and-gloom funsters at RGE Monitor, and a visiting or associate fellow pretty much everywhere worth having deep thoughts on big subjects.
Studying the latest official data (released Monday) in his blog for the Council on Foreign Affairs, "It is striking that for all the talk of safe haven flows to the US, foreign demand for all long-term US bonds has effectively disappeared," he explains.
In particular, "Over the past three months, almost all the growth in China's Treasury portfolio has come from its rapidly growing holdings of short-term bills, not from purchases of longer-term notes...and it is also still selling [mortgage] Agency bonds."
All told, China continued to buy US Treasury debt; it is "the only option" for China, Russia and everyone else at this stage of the game, as Luo Ping wailed to the FT last month. But of the $12.2 billion China purchased in January, fully 95% were short-term bills. "Russia also, interestingly, added to its holdings of short-term Treasury bills," Setser says.
And then, with the latest Treasury fund-flow data revealed...BOOM! The Federal Reserve prints $300bn to buy 30-year US debt, plus another $750bn to buy mortgage-agency bonds.
May 2009!
Now we have a falling USD, rising equity markets and rising gold. WTF?
Gold becoming a pure USD hedge it appears, with a move from financial assets (bonds), into hard assets (metals, energy).
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