China still buying record amounts of US bonds: report
May 28, 2009
China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, the Financial Times reported. In a story on its website, the FT quoted Chinese and western officials in Beijing as saying China was caught in a “dollar trap.” The newspaper said China had little choice but to keep pouring the bulk of its growing reserves into US Treasuries, which remains the only market big enough and liquid enough to support its huge purchases. The FT’s story lent support to US Treasury futures in Asian trading on Monday, analysts said.
“The FT article probably helped boost the confidence of Treasuries holders who were anxious about potential selling by other players amid worries of a possible US downgrade,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC.
Lead T-note futures were 3/32 lower from late US trading on Friday at 119-2.5/32, but off a six-month low of 118-30.5/32 hit earlier on Monday.
The dollar index, which measures the dollar’s value against a basket of six major currencies, hit a five-month low late last week, hurt by concerns that US government debt may lose its AAA rating.
China’s State Administration of Foreign Exchange (Safe) has not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to US Treasury securities, the FT quoted a western adviser familiar with Safe thinking as saying.
The FT quoted the adviser as saying Safe traders were “very negative” on sterling because of expectations of renewed weakness of the UK currency but Safe was neutral on the euro and bullish on the Australian dollar.
Source: bdnews24
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