16 May 2009

QE, China and the Bond market

Interesting insights from W Joseph Stroupe, editor of Global Events Magazine www.globaleventsmagazine.com

The buying of longer-dated Treasuries by the Fed and potentially by domestic US investors would have the desirable effect of lengthening (flattening) the presently steep yield curve on sovereign US debt, making it both easier and cheaper for the Treasury to roll over the huge sums of maturing short-dated debt into longer-dated debt. That would also work to buy some time for the East to convert longer-dated assets into short-dated assets as its two de facto proxies (the Fed and US investors) carry the load of flattening out the yield curve and keeping longer-dated yields low.

The ultimate victor in the Fed/bond-market clash of wills will be the clever players in the East who see their holdings protected, at little cost and relatively low risk to themselves, while they work at an accelerated rate and in a multipronged strategy to divest of the riskier assets, accomplishing a sufficient measure of reduction of their exposure to dollar risk before the currency takes the awful brunt of the exceedingly dollar-debasing policies enacted in Washington during this crisis.


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