People’s Bank Of China Advisor Hints At Liquidating U.S. Treasury Holdings

Discontent over the amount of U.S. debt being held continues to emerge from within the People’s Republic of China. Ambrose Evans-Pritchard of The Telegraph (UK) reported yesterday:

The debt markets have been warned.

A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

“The incremental parts of our of our foreign reserve holdings should be invested in physical assets,” said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

“We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way.”

“Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries,” he said.

To my knowledge, this is the first time that a top adviser to China’s central bank has uttered the word “liquidate”. Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.

(Editor’s note: Italics added for emphasis)

The Telegraph’s international business editor warned about what such a liquidation could mean for bonds. Evans-Pritchard wrote:

It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.

Yet another reason to be careful of 10-year Treasuries and Bunds below 2pc yields. There is a big seller out there, just itching to let go.

(Editor’s note: Italics added for emphasis)

Li Daokui is also in the news for comments he made about the U.S. dollar. From Forbes’ Agustino Fontevecchia on Wednesday:

Amid continued political riff-raff in Europe, EU President Jose Barroso commented on the possibility of Eurobonds, adding his team would present a report on the feasibility and practicality of the proposal by year’s-end. At the same time, rumors of China possibly purchasing Italian bonds were reinvigorated by an advisor to the People’s Bank of China, Li Dakoui, who said he favored selling U.S. dollars and buying Italian debt to support the Eurozone.

(Editor’s note: Italics added for emphasis)

Stay tuned…

Sources:

Evans-Pritchard, Ambrose. “China to ‘liquidate’ US Treasuries, not dollars.” The Telegraph. 15 Sep. 2011. (http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/). 16 Sep. 2011.

Fontevecchia, Agustino. “Stocks Mixed After Moody’s Downgrades SocGen And Geithner Rejects Lehman-Moment.” Forbes. 14 Sep. 2011. (http://www.forbes.com/sites/afontevecchia/2011/09/14/equities-mixed-as-moodys-downgrades-socgen-and-geithner-rejects-europes-lehman-moment/). 16 Sep. 2011.

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Friday, September 16th, 2011 Asia, Banking, Bonds, Currencies, Debt Crisis

1 Comment to People’s Bank Of China Advisor Hints At Liquidating U.S. Treasury Holdings

  1. According to Zero Hedge, countries outside of the U.S. dumped 74 billion dollars in U.S. Treasuries, most of it over the weekend:

    “Over the weekend, we observed the perplexing sell off of $56 billion in US Treasurys courtesy of weekly disclosure in the Fed’s custodial account (source: H.4.1) and speculated if this may be due to an asset rotation, under duress or otherwise, out of bonds and into stocks, to prevent the collapse of the global ponzi (because when the BRICs tell the IMF to boost its bailout capacity you know it is global). We also proposed a far simpler theory: “the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise – China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived.” In hindsight the Occam’s Razor should have been applied. Little did we know 5 short days ago just how violent the reaction by China would be (both post and pre-facto) to the Senate decision to propose a law for all out trade warfare with China. Now we know – in the week ended October 12, a further $17.7 billion was “removed” from the Fed’s custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear. (Source)

    Undoubtedly, the Chinese and other countries have recently discovered that Italy and Greece, with smaller debt to income ratios than the United States, are less riskier and carry a higher rate of return. This is because, unlike the US, the Rothschild/Rockefeller bond rating agencies have trashed their country’s debt ratings, forcing them to pay a much higher interest rate than U.S. Treasuries. Hey, if you take the risk, you might as well earn the reward!

  2. Pete on October 24th, 2011

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