China continues to buy up government bonds, Ministry of Finance United States in large quantities, despite fears of a devaluation of U.S. dollar
According to preliminary data, U.S. Government, only in March this year, China's direct investment in U.S. Treasury bonds rose to $ 23.7 billion, reaching an absolute record in the $ 768 billion previously, Treasury and Federal Reserve (Fed) reported that during 2008 China increased its investment in U.S. debt to $ 477.6 billion to $ 727.4 billion
Financial analysts argue that China stuck to «dollar trap», since China has no alternative other than the continuation of the massive cash infusions into the economy through the purchase of U.S. government debt. In the context of the global financial crisis, U.S. Treasury bond market is considered to be the only major market with sufficient liquidity, which is consistent with the scope of Chinese investment and foreign exchange reserves. Since March, a 10-year yield of U.S. Treasury bonds rose 90 basis points and reached almost 3.5%.
In doing so, the Chinese authorities do not give up attempts to reduce dependence on the U.S. economy, where possible. In order to somehow protect themselves from the problems of the U.S. financial system, Chinese authorities have moved their investments in short-term debt and are trying to quietly diversify its reserves structure, increasing the gold reserve. Last year China ceased to buy the bonds of mortgage agencies Fannie Mae and Freddie Mac, and focused primarily on short-term treasury bills.
This week will be another auction for the sale of government bonds totaling U.S. $ 100 billion in China accounts for nearly a quarter of total debt dollars ($ 3.2 trillion.). In turn, China holds dollar-denominated assets, according to various estimates, from 70% to 80% of the world's largest reserves, which amount to almost $ 2 trillion. As a result, China has become the largest U.S. lenders, ahead of Japan to increase investments in debt from U.S. $ 579.9 billion to $ 626 billion
Next on the list of creditors of the U.S. followed by countries in the combined group «bank Islands» (Bahamas, Bermuda, Cayman and the Antilles, and Panama), Middle Eastern and African oil exporters, Russia and the United Kingdom, which in 2008 increased its investments in treasury bonds United States in the 3.5-fold, to $ 116.4 billion
«It is clear that if the Chinese were able to globally reduce its dependence on the dollar, they would be happy to use it. But what they can do? Stop buying or start selling U.S. Treasury securities? Then the collapse of the dollar occurs, all the Chinese dollar assets depreciated, and the world economy will experience the strongest shock the last time. For most of China, with its dependence on exports it would be a terrible blow, so willy-nilly forced Beijing to maintain the status quo », - said currency strategist Michael Dresdner Kleinwor Klavitter.
According to him, starting to invest in short-term debt of U.S. Chinese authorities, firstly, reduce the potential losses in the event of stressful situations in the economy, and secondly, on the assumption that short-term market liquidity in the securities above.
In a crisis of financial markets, China's buying U.S. government securities affects the mood of investors. «Information about China's increasing volume of investment may boost the confidence of the holders of U.S. bonds, which were concerned about the risk of possible sale of these securities by other players during the recession of U.S. economy», - considers the chief economist of Daiwa Securities SMBC Yasutoshi Nagai.
«I am not too concerned about the current trend in the yield of government bonds. If the case on the contrary, it seems to be rather alarming sign. But what we see - it is a signal, indicating the possibility of restoring the economy, that reduces the risk », - said the chief economist of MKM Partners Michael Darda.
In turn, Deputy Minister of Finance of Russia Oksana Sergienko argues that the demand on the part of Russia, China and other countries to buy long-term Treasury bonds U.S. Treasury decline, and, on April data, investors have reduced investment in these securities at 70%. Thus, it is expected that in the medium term, the U.S. must reduce the budget deficit to 3% of GDP, or the rating agencies may review the credit rating of the country, which now amounts to «AAA». «Even if they do not lower the rating, the demand for U.S. treasury bonds from Russia, China and other countries will decline. Turn trend will be slow, but it is clear », - believes Ms Sergiyenko.
Economic News
According to preliminary data, U.S. Government, only in March this year, China's direct investment in U.S. Treasury bonds rose to $ 23.7 billion, reaching an absolute record in the $ 768 billion previously, Treasury and Federal Reserve (Fed) reported that during 2008 China increased its investment in U.S. debt to $ 477.6 billion to $ 727.4 billion
Financial analysts argue that China stuck to «dollar trap», since China has no alternative other than the continuation of the massive cash infusions into the economy through the purchase of U.S. government debt. In the context of the global financial crisis, U.S. Treasury bond market is considered to be the only major market with sufficient liquidity, which is consistent with the scope of Chinese investment and foreign exchange reserves. Since March, a 10-year yield of U.S. Treasury bonds rose 90 basis points and reached almost 3.5%.
In doing so, the Chinese authorities do not give up attempts to reduce dependence on the U.S. economy, where possible. In order to somehow protect themselves from the problems of the U.S. financial system, Chinese authorities have moved their investments in short-term debt and are trying to quietly diversify its reserves structure, increasing the gold reserve. Last year China ceased to buy the bonds of mortgage agencies Fannie Mae and Freddie Mac, and focused primarily on short-term treasury bills.
This week will be another auction for the sale of government bonds totaling U.S. $ 100 billion in China accounts for nearly a quarter of total debt dollars ($ 3.2 trillion.). In turn, China holds dollar-denominated assets, according to various estimates, from 70% to 80% of the world's largest reserves, which amount to almost $ 2 trillion. As a result, China has become the largest U.S. lenders, ahead of Japan to increase investments in debt from U.S. $ 579.9 billion to $ 626 billion
Next on the list of creditors of the U.S. followed by countries in the combined group «bank Islands» (Bahamas, Bermuda, Cayman and the Antilles, and Panama), Middle Eastern and African oil exporters, Russia and the United Kingdom, which in 2008 increased its investments in treasury bonds United States in the 3.5-fold, to $ 116.4 billion
«It is clear that if the Chinese were able to globally reduce its dependence on the dollar, they would be happy to use it. But what they can do? Stop buying or start selling U.S. Treasury securities? Then the collapse of the dollar occurs, all the Chinese dollar assets depreciated, and the world economy will experience the strongest shock the last time. For most of China, with its dependence on exports it would be a terrible blow, so willy-nilly forced Beijing to maintain the status quo », - said currency strategist Michael Dresdner Kleinwor Klavitter.
According to him, starting to invest in short-term debt of U.S. Chinese authorities, firstly, reduce the potential losses in the event of stressful situations in the economy, and secondly, on the assumption that short-term market liquidity in the securities above.
In a crisis of financial markets, China's buying U.S. government securities affects the mood of investors. «Information about China's increasing volume of investment may boost the confidence of the holders of U.S. bonds, which were concerned about the risk of possible sale of these securities by other players during the recession of U.S. economy», - considers the chief economist of Daiwa Securities SMBC Yasutoshi Nagai.
«I am not too concerned about the current trend in the yield of government bonds. If the case on the contrary, it seems to be rather alarming sign. But what we see - it is a signal, indicating the possibility of restoring the economy, that reduces the risk », - said the chief economist of MKM Partners Michael Darda.
In turn, Deputy Minister of Finance of Russia Oksana Sergienko argues that the demand on the part of Russia, China and other countries to buy long-term Treasury bonds U.S. Treasury decline, and, on April data, investors have reduced investment in these securities at 70%. Thus, it is expected that in the medium term, the U.S. must reduce the budget deficit to 3% of GDP, or the rating agencies may review the credit rating of the country, which now amounts to «AAA». «Even if they do not lower the rating, the demand for U.S. treasury bonds from Russia, China and other countries will decline. Turn trend will be slow, but it is clear », - believes Ms Sergiyenko.
Economic News
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