China sells $34.2bn of US treasury bonds

Asheron

China relinquished its position as the largest overseas holder of US treasury bonds by selling $34.2bn (£21.7bn) worth of the securities in December, according to new treasury figures.


The move means that Japan, which boosted its purchases, is once again in the top spot. China’s sale contributed to a record drop in foreign holdings of short-term bills: in all, net overseas holdings of bills fell by $53bn. The previous record was $44.5bn in April last year.

But overall, the US saw a net inflow of $60.9bn as investors bought longer-term securities.


http://www.guardian.co.uk/business/2010/feb/17/china-sells-us-treasury-bonds

:rotfl:

1984ReturnsForReal_2

Am I right to find this quite worrying?

Cleaver

1984ReturnsForReal wrote: »

Am I right to find this quite worrying?

If Asheron wants you to worry he puts a picture next to it. So yes.

On a serious point, can I ask a stupid question? If China sells $20 billion odd of these things, what happens to them? I know the article states that the US saw a net income, so presumably other countries bought them, but what happens if lots of countries all decide to sell at one point in time? I'm presuming there are lots of reasons why this wouldn't happen.

If someone other than Asheron could give me an answer that would be great.

Malcolm.

What happens when supply is greater than demand?
The price falls i.e. the value of the dollar will fall on the international currency markets.

baileysbattlebus

Thought we were skint:

Japan, Britain, Luxembourg and Hong Kong made sizeable purchases, with the UK buying $24.9bn of US government debt.

Do you think we used the real McCoy or some of Merv's specially printed funny money?

Mr.Brown_4

I don't understand why we bought 24 billion US debt? Surely we could have used that to pay down our own debt?? Except we don't have 24 billion... do we????

Please, someone - my head hurts.

Malcolm.

Mr.Brown wrote: »

I don't understand why we bought 24 billion US debt? Surely we could have used that to pay down our own debt?? Except we don't have 24 billion... do we????

Please, someone - my head hurts.

Ignoring interest payments.

If the pound is going to devalue against the dollar, it's better to have UK debt and dollar savings.

baileysbattlebus

Malcolm. wrote: »

Ignoring interest payments.

If the pound is going to devalue against the dollar, it's better to have UK debt and dollar savings.

Does that mean those at the top don't have quite the level of stupidy we credit them with?

Mr.Brown_4

Malcolm. wrote: »

Ignoring interest payments.

If the pound is going to devalue against the dollar, it's better to have UK debt and dollar savings.

If. Does that mean it's a gamble? That's a hell of a pile of chips - 24 billion. But the US want a low dollar as well don't they? So maybe they will buy our debt? Or does the whole world buy US debt, and the US just spend the money on stuff.

Although I am a very rich person obviously, see other threads, this sort of finance is beyond even me and my lottery style life.

Generali

Cleaver wrote: »

If Asheron wants you to worry he puts a picture next to it. So yes.

On a serious point, can I ask a stupid question? If China sells $20 billion odd of these things, what happens to them? I know the article states that the US saw a net income, so presumably other countries bought them, but what happens if lots of countries all decide to sell at one point in time? I'm presuming there are lots of reasons why this wouldn't happen.

If someone other than Asheron could give me an answer that would be great.

From a logical standpoint, everyone can't sell as for every seller there must be a buyer. That probably seems like a weird point to make but it's something that's often overlooked.

If more holders of US debt want to sell then the price of that debt will fall which is the same thing as the interest that the bonds pay (called a coupon) will rise relative to the price of the bond.

That would mean that if the US Government wanted to borrow more money, either because it was running a deficit or because old bonds were maturing and so they wanted to issue new ones to replace them, it would be more expensive to borrow more money as the new bonds would be competing with the old ones for buyers and so would need to be priced accordingly.

Malcolm.

baileysbattlebus wrote: »

Does that mean those at the top don't have quite the level of stupidy we credit them with?

The transaction wouldn't have been browns doing, if that restores your faith!?