Despite China's jitters, Treasury bond market stays calm

The Treasury bond market hiccuped early today after Chinese Premier Wen Jiabao expressed nervousness about the "safety" of U.S. debt.

But a modest rise in yields on long-term Treasury bonds quickly brought buyers back into the market, which has been remarkably resilient in recent weeks despite Uncle Sam's huge ongoing borrowing wave.

The 10-year T-note yield, which jumped as high as 2.97% this morning, ended the day at about 2.89%, flat with Thursday's closing yield. The 30-year T-bond edged up to 3.67% from 3.63% on Thursday. Yields on shorter-term Treasuries ended mostly lower for the day.

At a press briefing in Beijing today, Wen noted that China had "lent huge amounts of money to the United States," making China America's single biggest creditor.

"To be honest, we are a little bit worried," Wen said. "We hope the United States honors its word and ensures the safety of Chinese assets."

What was his point? The Chinese may be legitimately worried about record U.S. borrowing this year to fund the Obama administration’s rescues of the economy and the financial system. Government stimulus spending is expected to be a key discussion point at this weekend’s meeting of finance ministers of the Group of 20 nations in London.

If investors begin to balk at Treasury debt, forcing yields up dramatically, that would devalue China's holdings of older fixed-rate Treasuries.

Wen also may have been warning the U.S. against badgering China on the issue of its currency’s value against the dollar. China has resisted allowing its currency to appreciate quickly against the greenback, for fear of driving up prices of Chinese exports for U.S. buyers.

"I think it’s a lot of political posturing for currency purposes," said John Spinello, a market strategist at brokerage Jefferies & Co. in New York.

Despite Wen’s jitters, the Treasury market still is basking in the glow of surprisingly strong investor demand this week as the government sold $18 billion in new 10-year T-notes and $11 billion in 30-year T-bonds Wednesday and Thursday, respectively.

A wild card that continues to buoy the market is the possibility of the Federal Reserve stepping in to buy Treasury bonds for its own account. The Fed has said in recent months that it was considering the move as a way to push long-term interest rates lower, to help the economy. Fed policymakers are expected to provide an update on their thinking when they meet Wednesday.

The Bank of England last week said it would begin buying British government bonds -- and the market reaction was dramatic: The yield on 10-year British bonds has plunged to 2.94%, down from 3.64% on March 4.

With that kind of response, bond traders are reluctant to sell Treasuries now, figuring the Fed could work some of the same magic if it decides to jump into the market, said Lou Crandall, chief economist at bond research firm Wrightson ICAP in Jersey City, N.J.

-- Tom Petruno

Photo: Chinese Premier Wen Jiabao. Credit: Diego Azubel / European Pressphoto Agency

Comments

[owlbear1]

Dear Premier Jiabao,
Your 'nervousness' might be a bit more convincing if your government wasn't trying to ram US Ships. Please stop your "kiss my ring' posturing?

[Ron]

China should be worried about their dangerous over investment in US Treasury obligations. Washington’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
Thanks, Ron Holland

[island]

"China is telling the US to be careful, not to overspend and keep an eye on the dollar," Kelvin Lau, regional economist at Standard Chartered in Hong Kong, told the Associated Press.

"China is telling the US..."

"China is telling the US..."

"CHINA is telling the US!!!..."

[nader paul kucinich gravel]

China is slowly and quietly dumping the U.S. Dollar.

The variable rate has gone up;
penalties and fees do apply ~

[joey95es]

It seems to me that the US has been criticizing China's purchase of treasuries for years now. China was purchasing treasuries to manipulate the dollar so that they could continue to export to the US at a reduced rate. Now that they're realizing the danger they are in it's supposed to be our problem? They try to do and end run around fair trade rules against substantial warning... if anyone doesn't get paid by the treasury it should be China.

http://www.nam.org/PolicyIssueInformation/InternationalEconomicAffairsPolicy.aspx?DID={D336F56A-5298-4B8C-B1A7-3BC0096B85F4}

[Ron]

China should be worried about their dangerous over investment in US Treasury obligations. Washington ’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
Thanks,
Ron

[autobotalex]

A nation that does not pay back its debt is an immoral nation, and will have no standing in the world. Any reader on this forum that thinks its acceptable for US to default on its debt obligation deserve to live in what may one day become a third world country in that case. All declines of great power have followed a pattern of first moral decline, then financial decline, then military decline. The common citizens usually are the last to find out that they don't live in the same country anymore, yet they will go on thinking and acting and talking like they are better than everyone else for a few more generations. Right now America is at the verge of not being able to pay its debt, yet its still spending more money at making and preparing war than the military budget for the rest of the world combined. Why doesn't America save the money spent on the spying missions along China's coast, and use that to pay off some of the debt?

[The Mad Hedge Fund Trader, San Francisco, CA]

Chinese president Hu Jintao has expressed “concern” about the safety of his country’s $696 billion investment in US Treasury bonds. What he is not telling you is that he is even more “concerned” about the hundreds of billions of Fannie Mae, Freddie Mac, GMAC, and other agency debt, which are either now untradeable, or are trading at pennies on the dollar. And “concerned” he should be. Not only is some of the paper China owns now worthless, there is a 50% devaluation of the dollar in the cards which is the guaranteed result of current US government printing press policies. One of the great luxuries of running a dictatorship is that you can skip mark-to-market accounting. The government entities that own this garbage are carrying it on their books at par, because they intend to hold it to maturity. If China used mark-to-market they would have plunged into another civil war by now. Expect to hear more “concerns” from Japan, Singapore, and the sovereign wealth funds that are in the same boat. www.madhedgefundtrader.com.