Not Pink, but Janet Yellen as she asks the Chinese to stop selling Treasuries
I wonder what the Chinese will want in return?
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Relaxation of tariffs and import quotas would be an obvious ask, and probably could be entertained to some degree.
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And will it bring back the pandas.
You might well expect some requests about Taiwan.
Or even to start buying again? Rumors I’ve heard are the Chinese bought none in the last auction but cannot verify.
They are shifting to Govt Agencies over Treasuries.
China Isn't Shifting Away From the Dollar or Dollar Bonds | Council on Foreign Relations.
Snip:
In 2022, China bought $84 billion of Agencies. It added another $18 billion in the first 6 months of 2023 – so purchases of over $100 billion in the last 18 months of data.
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Yellen is creating a rear-guarding maneuver as we exit the Chinese factory production of American-bought goods. We still need those goods but less and less. We just do not want to be cut off entirely yet. Playing nice smooths out the last of our business with China. The Chinese need the resources internally.
The tariffs were never necessary. China does not have the resources or the water to produce for us. Now China does not have the financing either. The tariffs were BS theater for simpletons. The tariffs only cost us money.
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Ok, I need a little help here (I know, understatement).
So China is selling Treasuries. In addition to sending a few cute Panda Bears back to China, I guess we’re also sending a whole bunch of US dollars to China (pretty sure the Treasury isn’t sending francs or rubles or Bitcoins).
What are they doing with all the greenbacks? Burning them to keep warm this winter? Let them sell the Treasuries. Less interest for us to pay.
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I find it fantastically unlikely Yellen is going to discuss bonds. For one, let’s say China could buy enough bonds to influence the price up (interest rates down) in a meaningful way. Isn’t that exactly what we don’t want right now?
If she were to discuss bonds (which again, does not seem remotely plausible) logically she would be saying “Please! Please sell all you can!” Asking China to buy bonds right now makes literally no sense.
In the meantime, we’re in the midst of a fairly serious trade war, our militaries aren’t talking, China is suppling Russia with military equipment, China is spying on us with balloons, we won’t let China make chips, and they took back their pandas. I think they have a lot to talk about.
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I don’t see how this follows. If they sell a treasury bond, likely to an insurance company, then instead of paying the interest to a Chinese state bank, we pay it to an insurance company. The interest paid doesn’t change.
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If I interpret AW correctly, he’s saying that China could sell the bonds for cash. But then they’d have a big stack of cash. Now what do you do with it?
Many people take a conspiratorial view of China owning US treasuries, but in a lot of ways they don’t have any choice.
China sells a whole bunch of stuff to the United States which they get paid for in dollars. That means they aways have big stacks of dollars they have to find a home for. Some of those dollars they can exchange for other currencies (which effectively means someone else is buying US bonds). Some of it they can lend out on their silk road initiative or BRICS development bank. But that’s ashtray money. The US Treasury on the other hand is always selling as much as you want to buy, so that’s what the Chinese do.
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Buying Yuan. They are trying to boost their own currency.
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From whom are they buying yuan?
From the secondary market like anyone else that purchases currency.
China state banks seen mopping up offshore yuan to stem currency weakness | Reuters.
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Is there enough yuan volume on the spot markets for them to accomplish what they are trying to accomplish? I’ve read that yuan trading is up, but it may still not be high enough volumes yet. And internal trading (inside China) is much less meaningful as the dollars still remain there in that case.
Not a clue - but I doubt they would be trying to do it if they didn’t think it would work.
Seeds of trouble were sown in October when China approved one trillion yuan ($137.32 billion) in sovereign debt sales, to be rolled out - according to sources familiar with the plans - by sticking to the issuance schedule for the fourth quarter but increasing the size of each tranche.
Typically, said one fund manager in Shanghai, in such situations the PBOC would offset the cash drain from the extra bond issuance with extra funding support - for example by relaxing bank reserve requirements.
But putting extra cash into the system would risk adding downward pressure on the yuan - which has lost over 5% against the dollar this year - and undercut months of efforts to stabilise the currency.
“The inaction by the central bank is mainly due to its concern over yuan depreciation,” said the fund manager, who declined to be identified as he was not authorised to talk to media.
On trading floors that Tuesday, the scramble for short-term funds became a stampede.
Even repo rates between banks, normally stable and the main gauge of short-term funding costs, flew from an overnight rate of 2% a day earlier to as high as 8% on Oct. 31.
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