us430b loss us treasury bonds spread overnight, page-2

If it is true .... (this news is 2 days old)

Global poltics forces China to buy US debt due to the massive trade imbalance. These are issued by US treasuries in order for the US itself to continue to trade. What China does to collateralise this debt is not known - but would require selling these bonds.

Anyone holding bonds is almost surely going to lose in the present market and will depend on the coupon rate of the bonds. Bernanke mentioned 10T's are effectively trading at 100x P/E ratio. You won't get a long term return on anything above 25x P/E (approx) - so why the heck anyone is buying high priced low yield bonds is beyond me.

Maybe China has been ratcheting down it's exposure to US bonds knowing this. This loss might stifle Chinese demand temporarily if this loss is real and realised.

The US wouldn't care in the slightest as this would force China to do something about managing RMB:USD. When China goes to a net importer country, a stronger RMB would help it's imports.

Possible negative trade implications and downward pressure on the AUD by trade association only. Upward AUD pressure would come from a collapse in the faith in the USD if China is selling out of the USD - this would have a much larger domino effect in the US bond market that might start shocks.

If it is true ... everyone would be expecting some loss to be realised due to the worthlessness of US bonds. Maybe China just [moderated] up and aren't that clever at playing investment banker.

Judging by the USDi, AU and EU today, I think people are erring on the side of China deciding to get out of the USD trade.

rgds,
pw