Fed Buying Treasuries; China Selling Treasuries

June 17th, 2009

Here’s some music to accompany this post.

Via: Reuters:

The Federal Reserve is buying Treasuries maturing May 2016 through May 2019 on Wednesday, the New York Federal Reserve said on its Website.

The purchase, which started at 10.16 a.m. (1416 GMT) and ends at 11 a.m. (1500 GMT), is part of the U.S. central bank’s emergency effort to keep long-term interest rates low.

The Fed said in March it would buy up to $300 billion in U.S. government bonds over six months.

Directly Related: China Sells Bonds to “Show Concern”

Via: AFP:

A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes, Chinese economists were quoted as saying in state media Wednesday.

The remarks, coming after US data showed a modest decline in Chinese investments in US government bonds, were in contrast to an earlier statement in Beijing which had said the recent sell-off was a routine transaction.

“China is implying to the US, more or less, that it should adopt a more pragmatic and responsible attitude to maintain the stability of the dollar,” He Maochun, a political scientist at Tsinghua University, told the Global Times.

According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.

It was the first month since June 2008 that Beijing failed to purchase more US T-bills.

Zhang Bin, a researcher at the Chinese Academy of Social Sciences, said China’s move showed a more cautious attitude.

“It is unclear whether the reduction will continue because the amount is so small. But the cut signals caution of governments or institutions toward US Treasury bonds,” Zhang told Xinhua news agency.

China’s foreign ministry said Tuesday that its purchases of US Treasuries remained based on “security, liquidity and value preservation”.

For Zhao Xijun, deputy director of the Finance and Securities Research Institute of People’s University, China may have reduced its holding of US Treasuries simply because it needed the money.

Zhao said the sell-off could have been in order to pay for its own economic stimulus package.

“The reduction was a result of composite factors, such as the investment need and the market change,” Zhao told Global Times.

2 Responses to “Fed Buying Treasuries; China Selling Treasuries”

  1. thucydides Says:

    “Bobo Ben’s Exploding Confetti Machine”, hah!

    So the fourteen-trillion-dollar question: is this a not-so-subtle hint, or does this mark the beginning of the PRC’s divestiture of its US debt?

  2. remrof Says:

    @thucydides

    China’s divestiture is ongoing:
    http://www.marketskeptics.com/.....erves.html

    When the currency peg collapses, the resulting economic discoordination will make everything more scare, so china is doing what it can to buy up resources before things really go south (but not necessary by selling treasuries). They have an interest in keeping this thing going as long as they think they can manage it.

    Personally, I think that this selloff, because of the way its being reported, is a direct signal to the US Fed – a ‘last chance’ plea for monetary sanity, not an attempt to actually divest. China won’t really ever be able to meaningfully divest any large portion of their dollar reserves, because of their sheer size and the already precarious position of the dollar.

    Unfortunately its possible Bernanke is intentionally aiming to sink the fed, in an attempt to bolster the case for a global monetary authority.

    This could be why he recently asked for spending cuts:
    http://www.bloomberg.com/apps/.....rOZ.gd85yc

    I think he’s trying to save his legacy. Can’t have your cake and eat it too Ben, but nice try.

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