The U.S. bond market is increasingly encumbered by the prospect of rising government borrowing, which will deliver a wholesome dose of new debt into the market and is already pressuring yields higher. [1]
“The signal this sends is not good” for ties between the two nations, said Charles Freeman, a fellow at the Center for Strategic and International Studies and former top trade negotiator for China at the U.S. Trade Representative’s office. “It opens a Pandora’s box. We need the Chinese to hold onto their Treasury and agency debt.” [2]
That’s a heck of a reception the new guy just gave to the Welcome Wagon Lady. The Bloomberg [2] story continues:
Geithner’s comments triggered a drop in Treasuries on concern that demand from China, the largest foreign investor in U.S. government debt, may wane. They may also reignite calls among some U.S. lawmakers for measures to punish trading partners perceived to have undervalued exchange rates.
Over at the Council on Foreign Relations, Brad Setser is looking at some ominous trends in foreign demand for long-term US assets.[3] If the holdings are short-term, it means the level of holdings can potentially turn around quickly — perhaps more quickly than an economy that needs the support of this lending can itself turn around.
UPDATE: There has now (Saturday evening) been plenty of reaction, including this.[7]
Su Ning, vice governor of the People’s Bank of China, called Geithner’s remarks misleading and "out of keeping with the facts," and said they could sidetrack efforts to manage the global financial crisis, the official New China News Agency reported.
Meanwhile, twist has just reminded me that the 52-week chart of YoY foreign central bank change in their Agency Debt holdings is now plunging into negative territory. This trend is a big reason why the Fed is now buying agencies. That fiddle changes the goal-posts, but it makes the treasuries market all the more crucial. If that yellow line shows any further signs of a peak we may rapidly find ourselves in the soup.
Well, we’ll just have to see what transpires, but this week’s Reuters report [4] records especially lusty, $16.561 billion demand by foreign central banks for Treasury Debt in the last week (though that’s a bit south of the Top 10 moves in the data set). Meanwhile, the cenbanks continue to dump agencies, although this week’s tally was a modest $3.983 billion sell-off, down a bit from last week. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[5] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[6]
That big treasuries buy resulted in a $12.578 billion surge in the total US obligations held by the cenbanks. Foreign appetite for this paper is critical for Obama’s people to finance their bailouts at an affordable cost. If this number collapses, T-bill yields could spike, which could thrust a nasty spanner into the spokes of the new stimulus package.
Divergence in the raw-numbers graph is accelerating again, …
… and that drove twist’s ratio graphs down strongly this week.
________________________
Notes and References
[1]: "US TREASURY OUTLOOK-The demands of supply", by Pedro Nicolaci da Costa, Reuters / Forbes, January 22, 2009.
[2]: "Geithner Warning on Yuan May Trigger Renewed U.S.-China Tension", by Mark Drajem and Rebecca Christie, Bloomberg, January 23, 2009.
[3]: "Should the US worry about the drop in foreign demand for US long-term assets?", by Brad Setser, Council on Foreign Relations blog, January 21, 2009.
The latest TIC data provides yet more evidence that financial globalization — the rise in cross-border flows — has peaked. At least temporarily. Foreigners are buying far fewer long-term US bonds than they used too.
[4]: "Foreign central banks boost Treasury holdings – Fed", by Chris Reese, Reuters, January 22, 2009.
[5]: "H.4.1 Factors Affecting Reserve Balances", Federal Reserve Statistical Release (weekly), Federal Reserve Bank of New York.
[6]: The updated data set as a Comma Separated Value (CSV) file is here.
[7]: "China Slams Geithner’s Comments on Currency", by Maureen Fan, Washington Post, January 24, 2009.
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Geithner is the WORST pick by Obama so far. We cannot afford a guy who make “mistakes” not paying taxes; we cannot afford a guy who makes hostile comments to Chinese while begging Chinese to buy more treasuries. Does he not know that the Chinese has the treasury by the balls??
I’m really upset and i’m writing my representatives.
and let’s not be mistaken…..he made no “mistake.” he cheated. it’s that simple. i’m not gonna crucify the guy for it (as i believe the most common act of dishonesty occurs on tax returns), but it is what it is. he signed paperwork when he went to the IMF acknowledging how the pay would be taxed. he was also notified by the IMF in writing, a number of times, that he was liable for social security and medicare tax on that income. he then paid 03 and 04 upon an 06 audit, but fought the 01 and 02 liability, citing the statute of limitations (3 years to open up tax returns). it was only when Obama began vetting him that he paid 01 and 02. but it’s not for these reasons that i think he’s an idiot. HE USED TURBOTAX TO PREPARE HIS OWN RETURNS!!!!! nothing against all of you “self-preparers,” but some people get to a point in their career when it is just plain foolish to think you can prepare your own return. i believe when you find yourself working for the IMF it is time TO GET A CPA!!!!!
At a Senate check chance at which he apologized for a regress in paying writer than $34,000 in taxes early this decennary, Geithner sketched out a multi-pronged swing to stabilise housing, fortify botanist and livelihood consumer achievement to better the frugality escape extricated of a year-long incurvation.”What the presidentship is going to do is he’s going to get before the Legislature, we plan in the succeeding few weeks, and lay out for the Inhabitant group a sweeping programme to provide stabilise the nucleus of our business system,” Geithner told the Senate Economics Committee.Geithner, who in his afoot in governance efforts to propeller up business markets, declined to wage specifics, expression information had yet to be worked out. “We’ve seen the costs, in position of quality created by tentative signals not followed up by modify actions,” he said.Geithner’s comments disappointed several investors, who had hoped the organization would propose writer speedily to ply phytologist empty a mountain of bad debt, and briefly pushed stocks into pessimistic region before a big late-day summon.see more inCondominiums Toronto