WASHINGTON, Feb 10 (Reuters) - Senior Chinese military officers have recommended Beijing "dump" some U.S. Treasury bonds to punish the Obama administration for Washington's latest round of planned arms sales to Taiwan.
Luo Yuan, a major general in the People's liberation Army, was quoted in an official publication saying bond sales could be part of a package of economic "counter punches" over the arms sales.
Speculation of how China might use its position as America's top foreign creditor to influence Washington has risen steadily as U.S. deficits have swelled and tensions grow over the restricted valuation of the yuan. Following are some key facts about China's Treasury and dollar asset holdings:
* China's holdings of U.S. Treasury debt dipped to $789.6 billion in November from $798.9 billion, a month-on-month decline of $9.3 billion or 1.1 percent. It remains the largest holder of Treasuries, ahead of Japan, which held $757.3 billion in November.
* China's holdings of Treasuries has nearly doubled in the last two years. Beijing held $421.1 billion in Treasuries in March 2007, before the financial crisis emerged, compared to Japan's $611.2 billion, which made it the largest Treasury debt holder at that time. China's Treasury holdings peaked at $801.5 billion in May 2009.
* China's foreign exchange reserves, the world's largest, rose $453 billion in 2009 to $2.4 trillion. While China does not provide a breakdown of its reserves holdings, analysts believe about two thirds is held in dollar assets. A move to punish the United States by selling Treasuries or other holdings would undoubtedly hurt the value of this stockpile.
* China has attributed about $71 billion of the 2009 reserve gains to changes in foreign exchange rates and rises in asset values, citing in particular gains in non-dollar assets. The State Administration of Foreign Exchange has said the appreciation of its non-dollar holdings "has definitely led to growth in outstanding foreign exchange reserves calculated in dollars." Chinese officials also had expressed concerns the dollar's decline last year was hurting its reserves value.
* China held $1.205 trillion worth of U.S. long-term and short term securities, including Treasuries, as of June 2008, according to the Treasury's latest annual data on foreign portfolio holdings. At the end of June 2008, China's forex reserves stood at $1.809 trillion, so the dollar portion stood at almost exactly two thirds at that time.
* China's first purchase of long-term U.S. Treasury bonds and notes from U.S. sources was recorded in March 1985, with gross purchases of $29 million and gross sales to U.S. investors of $11 million that month. China's monthly gross purchases topped $1 billion for the first time in May 1992 and topped $5 billion in September 1996. They exceeded $10 billion in January 2000 and $20 billion in August 2002, peaking at $40.47 billion in June 2009. That same month, China sold $13.85 billion in long-term Treasuries to U.S. investors.
* In November, China's gross long-term Treasury purchases were $28.45 billion with gross sales of $13.51 billion to U.S. investors. Total November purchases of U.S. Treasuries by all foreigners from U.S. sources totaled $1.194 trillion, while sales to U.S. residents were $1.076 trillion.
Thursday, February 11, 2010
FACTBOX-China, the U.S. Treasury's top foreign creditor
WASHINGTON, Feb 10 (Reuters) - Senior Chinese military officers have recommended Beijing "dump" some U.S. Treasury bonds to punish the Obama administration for Washington's latest round of planned arms sales to Taiwan.
Luo Yuan, a major general in the People's liberation Army, was quoted in an official publication saying bond sales could be part of a package of economic "counter punches" over the arms sales.
Speculation of how China might use its position as America's top foreign creditor to influence Washington has risen steadily as U.S. deficits have swelled and tensions grow over the restricted valuation of the yuan. Following are some key facts about China's Treasury and dollar asset holdings:
* China's holdings of U.S. Treasury debt dipped to $789.6 billion in November from $798.9 billion, a month-on-month decline of $9.3 billion or 1.1 percent. It remains the largest holder of Treasuries, ahead of Japan, which held $757.3 billion in November.
* China's holdings of Treasuries has nearly doubled in the last two years. Beijing held $421.1 billion in Treasuries in March 2007, before the financial crisis emerged, compared to Japan's $611.2 billion, which made it the largest Treasury debt holder at that time. China's Treasury holdings peaked at $801.5 billion in May 2009.
* China's foreign exchange reserves, the world's largest, rose $453 billion in 2009 to $2.4 trillion. While China does not provide a breakdown of its reserves holdings, analysts believe about two thirds is held in dollar assets. A move to punish the United States by selling Treasuries or other holdings would undoubtedly hurt the value of this stockpile.
* China has attributed about $71 billion of the 2009 reserve gains to changes in foreign exchange rates and rises in asset values, citing in particular gains in non-dollar assets. The State Administration of Foreign Exchange has said the appreciation of its non-dollar holdings "has definitely led to growth in outstanding foreign exchange reserves calculated in dollars." Chinese officials also had expressed concerns the dollar's decline last year was hurting its reserves value.
* China held $1.205 trillion worth of U.S. long-term and short term securities, including Treasuries, as of June 2008, according to the Treasury's latest annual data on foreign portfolio holdings. At the end of June 2008, China's forex reserves stood at $1.809 trillion, so the dollar portion stood at almost exactly two thirds at that time.
* China's first purchase of long-term U.S. Treasury bonds and notes from U.S. sources was recorded in March 1985, with gross purchases of $29 million and gross sales to U.S. investors of $11 million that month. China's monthly gross purchases topped $1 billion for the first time in May 1992 and topped $5 billion in September 1996. They exceeded $10 billion in January 2000 and $20 billion in August 2002, peaking at $40.47 billion in June 2009. That same month, China sold $13.85 billion in long-term Treasuries to U.S. investors.
* In November, China's gross long-term Treasury purchases were $28.45 billion with gross sales of $13.51 billion to U.S. investors. Total November purchases of U.S. Treasuries by all foreigners from U.S. sources totaled $1.194 trillion, while sales to U.S. residents were $1.076 trillion.
Luo Yuan, a major general in the People's liberation Army, was quoted in an official publication saying bond sales could be part of a package of economic "counter punches" over the arms sales.
Speculation of how China might use its position as America's top foreign creditor to influence Washington has risen steadily as U.S. deficits have swelled and tensions grow over the restricted valuation of the yuan. Following are some key facts about China's Treasury and dollar asset holdings:
* China's holdings of U.S. Treasury debt dipped to $789.6 billion in November from $798.9 billion, a month-on-month decline of $9.3 billion or 1.1 percent. It remains the largest holder of Treasuries, ahead of Japan, which held $757.3 billion in November.
* China's holdings of Treasuries has nearly doubled in the last two years. Beijing held $421.1 billion in Treasuries in March 2007, before the financial crisis emerged, compared to Japan's $611.2 billion, which made it the largest Treasury debt holder at that time. China's Treasury holdings peaked at $801.5 billion in May 2009.
* China's foreign exchange reserves, the world's largest, rose $453 billion in 2009 to $2.4 trillion. While China does not provide a breakdown of its reserves holdings, analysts believe about two thirds is held in dollar assets. A move to punish the United States by selling Treasuries or other holdings would undoubtedly hurt the value of this stockpile.
* China has attributed about $71 billion of the 2009 reserve gains to changes in foreign exchange rates and rises in asset values, citing in particular gains in non-dollar assets. The State Administration of Foreign Exchange has said the appreciation of its non-dollar holdings "has definitely led to growth in outstanding foreign exchange reserves calculated in dollars." Chinese officials also had expressed concerns the dollar's decline last year was hurting its reserves value.
* China held $1.205 trillion worth of U.S. long-term and short term securities, including Treasuries, as of June 2008, according to the Treasury's latest annual data on foreign portfolio holdings. At the end of June 2008, China's forex reserves stood at $1.809 trillion, so the dollar portion stood at almost exactly two thirds at that time.
* China's first purchase of long-term U.S. Treasury bonds and notes from U.S. sources was recorded in March 1985, with gross purchases of $29 million and gross sales to U.S. investors of $11 million that month. China's monthly gross purchases topped $1 billion for the first time in May 1992 and topped $5 billion in September 1996. They exceeded $10 billion in January 2000 and $20 billion in August 2002, peaking at $40.47 billion in June 2009. That same month, China sold $13.85 billion in long-term Treasuries to U.S. investors.
* In November, China's gross long-term Treasury purchases were $28.45 billion with gross sales of $13.51 billion to U.S. investors. Total November purchases of U.S. Treasuries by all foreigners from U.S. sources totaled $1.194 trillion, while sales to U.S. residents were $1.076 trillion.
Canada Bonds End Lower; Short End Underperforms Longer Issues
TORONTO (Dow Jones)--Canadian bonds ended lower Wednesday, with the short end of the yield curve selling off sharply along with U.S. Treasurys as comments from U.S. Federal Reserve Chairman Ben Bernanke incited speculation that the Fed could embark on monetary tightening earlier than previously expected.
In prepared testimony before the House Financial Services Committee, Bernanke suggested the rate paid to banks on excess reserves held at the central bank may for a time replace the Fed funds rate as the main operating target for policy.
As part of the Fed's plans to end its liquidity programs, Bernanke also said the central bank could "before long" increase the spread, or difference, between the discount rate it charges banks for emergency loans and the Fed funds rate.
"We initially had Bernanke speaking, saying there's a chance we might see the discount rate start to move higher, as opposed to the fed funds rate," said MacQuarie's Price.
"He almost immediately backtracked by saying this doesn't mean we're going to be in all-out-tightening mode. Nonetheless, he said it, and that had the short end underperforming right off the bat and the curve flattening," Price said.
A tepidly received auction of $25 billion of 10-year U.S. Treasury notes also weighed on North American bond markets Wednesday.
The Bank of Canada reported an average yield of 1.875% at an auction of C$3.2 billion (US$3.0 billion) of 1.75% non-callable government bonds due March 1, 2013.
With the issue of the new bonds, the outstanding total of 1.75% bonds due March 1, 2013, will be C$6.4 billion.
"To be honest, I think most people were watching the Treasury side of the equation more than the homegrown," said MacQuarie's Price. "Our supply is still relatively constricted compared to theirs, so the bearish talk we hear on the Street because of excessive Treasury supply doesn't necessarily apply to us."
The weakness in the front end of the yield curve resulted in significant flattening of the Canadian yield curve Wednesday, with the spread between two-year and 30-year bonds moving to 270 basis points from 274 Tuesday.
Price said he expects further flattening of the yield curve in response to the prospect of central bank tightening. The Bank of Canada, and, to a lesser extent, the U.S. Federal Reserve both have some room to tighten interest rates in the coming months, he said.
"I think they've got room to start lifting the short-term rates, or at least hinting that they're going to lift, and still be very accommodative," he said.
In domestic data on Wednesday, Canada's trade deficit widened to C$246 million (US$230 million) in December from an upwardly revised C$201 million the previous month. The market had expected a C$100 million deficit.
On Thursday, the new housing price index for December will be released.
1.50s 2012 100.33 dn 0.13 1.34% vs 1.28% 2.00s 2014 97.67 dn 0.33 2.52% vs 2.45% 3.75s 2019 102.50 dn 0.46 3.43% vs 3.38% 5.00s 2037 115.74 dn 0.68 4.04% vs 4.01% 10-Yr Spread to U.S. 10-Yr: -27 vs -26"I would say all the action is Fed related today," said James Price, senior vice-president and director of fixed-income at MacQuarie Private Wealth.
In prepared testimony before the House Financial Services Committee, Bernanke suggested the rate paid to banks on excess reserves held at the central bank may for a time replace the Fed funds rate as the main operating target for policy.
As part of the Fed's plans to end its liquidity programs, Bernanke also said the central bank could "before long" increase the spread, or difference, between the discount rate it charges banks for emergency loans and the Fed funds rate.
"We initially had Bernanke speaking, saying there's a chance we might see the discount rate start to move higher, as opposed to the fed funds rate," said MacQuarie's Price.
"He almost immediately backtracked by saying this doesn't mean we're going to be in all-out-tightening mode. Nonetheless, he said it, and that had the short end underperforming right off the bat and the curve flattening," Price said.
A tepidly received auction of $25 billion of 10-year U.S. Treasury notes also weighed on North American bond markets Wednesday.
The Bank of Canada reported an average yield of 1.875% at an auction of C$3.2 billion (US$3.0 billion) of 1.75% non-callable government bonds due March 1, 2013.
With the issue of the new bonds, the outstanding total of 1.75% bonds due March 1, 2013, will be C$6.4 billion.
"To be honest, I think most people were watching the Treasury side of the equation more than the homegrown," said MacQuarie's Price. "Our supply is still relatively constricted compared to theirs, so the bearish talk we hear on the Street because of excessive Treasury supply doesn't necessarily apply to us."
The weakness in the front end of the yield curve resulted in significant flattening of the Canadian yield curve Wednesday, with the spread between two-year and 30-year bonds moving to 270 basis points from 274 Tuesday.
Price said he expects further flattening of the yield curve in response to the prospect of central bank tightening. The Bank of Canada, and, to a lesser extent, the U.S. Federal Reserve both have some room to tighten interest rates in the coming months, he said.
"I think they've got room to start lifting the short-term rates, or at least hinting that they're going to lift, and still be very accommodative," he said.
In domestic data on Wednesday, Canada's trade deficit widened to C$246 million (US$230 million) in December from an upwardly revised C$201 million the previous month. The market had expected a C$100 million deficit.
On Thursday, the new housing price index for December will be released.
Forex Review - Greece Again Rattles the Euro
written by: Ron Finberg , Trading Analyst
Well, so much for yesterday’s rally. Once again Greece hits the headlines, as yesterday’s denial of a German assisted bailout is finally registered by the market. Nonetheless, some of the losses were pared after new French reports signaled help was on the way.
First, a recap of the numbers: (as of 20:30 GMT)
EURUSD : 1.3740 (-40 pips)
GBPUSD : 1.5588 (-116 pips)
AUDUSD : 0.8758 (-20 pips)
USDCAD : 1.0620 (-62 pips)
GOLD : 1070.00 (- $5.50)
CRUDE OIL : 74.50 (+ $0.50)
S&P 500 :1065 (-2.75 points)
What’s really going on?
Yesterday, we questioned whether yesterday’s risk appetite rally was anything more than a bounce combined with short covering. The answer came quickly as Forex traders wasted no time in a return to selling the euro. What today’s trading reveals is that Forex traders aren’t ready to move on, and are worried about the fallout that would occur if Greece would go bankrupt. On a side note, a CNBC interviewee had a grat quote about yesterday saying that Greece has been on the brink of economic collapse for the past 100 years, and they have always seemed to roll along.
Also occurring today were Trade Balance numbers from China, the US, and Canada. The US numbers showed a greater than expected deficit, but also revealed export growth. Dollar bulls used the growing export numbers as an excuse to buy dollars. As a result, the EURUSD traded down to a low of 1.3680, after being above 1.3800 yesterday.
The big loser today was the pound. The GBPUSD is down over 100 pips on the day to 1.5585, as the BoE’s inflation report appears to have convinced Forex traders that the BoE may reinstate its QE policies. The BoE’s outlook was for worse than expected UK growth in 2011 and low inflation levels. On the positive side (and this initially led to gains in the pound), BoE Governor Mervyn King believed that the UK will continue its gradual recovery and risks of another economic contraction appeared limited.
In the past, the BoE has had a habit of being conservative and attempting to lower market expectations. If so, the pound could be in line for an upside move, if we do in fact see better than expected economic numbers released.
Today’s Action
First, a recap of the numbers: (as of 20:30 GMT)
EURUSD : 1.3740 (-40 pips)
GBPUSD : 1.5588 (-116 pips)
AUDUSD : 0.8758 (-20 pips)
USDCAD : 1.0620 (-62 pips)
GOLD : 1070.00 (- $5.50)
CRUDE OIL : 74.50 (+ $0.50)
S&P 500 :1065 (-2.75 points)
What’s really going on?
Yesterday, we questioned whether yesterday’s risk appetite rally was anything more than a bounce combined with short covering. The answer came quickly as Forex traders wasted no time in a return to selling the euro. What today’s trading reveals is that Forex traders aren’t ready to move on, and are worried about the fallout that would occur if Greece would go bankrupt. On a side note, a CNBC interviewee had a grat quote about yesterday saying that Greece has been on the brink of economic collapse for the past 100 years, and they have always seemed to roll along.
Also occurring today were Trade Balance numbers from China, the US, and Canada. The US numbers showed a greater than expected deficit, but also revealed export growth. Dollar bulls used the growing export numbers as an excuse to buy dollars. As a result, the EURUSD traded down to a low of 1.3680, after being above 1.3800 yesterday.
Pound hit by BoE Inflation Report
In the past, the BoE has had a habit of being conservative and attempting to lower market expectations. If so, the pound could be in line for an upside move, if we do in fact see better than expected economic numbers released.
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