Ali’s blog

Mostly quant stuff with occasional digressions

Japan, China, and South Korea shy away from US Treasury debt

Posted by alifinmath on April 28, 2008

April 28 (Bloomberg) — Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.

Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.

A bit of a problem for the US government as low interest rates coupled with a weakening dollar make it difficult to finance fiscal deficits. The only thing that would make US Treasury debt sufficiently attractive as to offset currency rate risk would be high interest rates — but this is not considered an option presently.


2 Responses to “Japan, China, and South Korea shy away from US Treasury debt”

  1. Chris Prouty said

    We need another Paul Volker. I pointed this trade out a while back and I shall point it out again: short Eurodollar futures. I won’t claim to be able to time this one, but depending on the shape of the forward curve in ED futures, shorting distant contracts after this next expected rate drop could position one nicely for the time when the central bank is forced to raise rates (perhaps violently).

  2. Chris Prouty said

    As a follow-up, the March 2013 ED futures are trading at an implied rate of 4.885%. Not a bad bet in my opinion, and it will get prettier if Ben drops rates another quarter.

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