Is China Looking at a $430 Billion Loss on U.S. Treasury Bonds?

August 31st, 2010

WARNING: This is not a recommendation to buy, sell or hold any financial instrument.

I don’t see how they could be looking at a loss of that magnitude right now. The only way that’s possible is if there’s some unthinkably large position that they have not acknowledged.

Initially, this feels like Information Operations to me. By whom and for what? I have no idea.


Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou. Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China.

STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.

More: “Knowledgeable U.S. Government Officials” Deny It

Via: Washington Post:

Two knowledgeable government officials, speaking on condition of anonymity, said they had no evidence of Zhou’s defection and that he was not in U.S. custody.

“There’s no indication at this point that he’s defected,” said one. “It doesn’t pay to give too much attention to rumors.”

A nonpartisan congressional China expert, speaking on condition of anonymity, said that the losses cited for the PBC were ridiculous.

“I’m not sure how exactly anyone could have ‘lost’ money on investing in U.S. Treasuries since they have been doing a lot better than U.S. stocks,” he said by e-mail.

More: ZeroHedge Takes a Stab at the Math

Via: ZeroHedge:

Assuming average 6 Year duration on holdings (completely arbitrary), and a 2% drop in rates, means $430 billion is 12% of total notional, so somehow China must be short $3.5 trillion in notional or synthetically.

2 Responses to “Is China Looking at a $430 Billion Loss on U.S. Treasury Bonds?”

  1. Eileen Says:

    Poor fellow. Another truth teller has probably already bitten the dust.

  2. shoe2one Says:

    I’ve found too much bogus stuff at zerohedge

    For a less conspiratorial viewpoint:

    China’s Currency Revaluation

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