Friday, November 12, 2004

Where would we be without them?

The funny thing is, I often hear from Bush supporters that deficits don't matter - after all, look how low interest rates are!

From today's WSJ article on Asian central banks and Treasury markets:

Japan's and China's purchases of Treasurys in recent years are credited with helping keep interest rates in the U.S. at historic lows. To put their role in the U.S. debt markets into perspective, Japan and China own about a quarter of Treasurys outstanding, with respective holdings of $723 billion and $172 billion.

...Foreign central banks have been big buyers of Treasurys, especially since a robust October employment report last Friday sent yields soaring. Market participants said these institutions rushed into the market as the 10-year yield approached 4.25% and put a lid on the selloff by buying government securities in large amounts, with bids Friday estimated at around $1 billion.

Some in the market speculate that the People's Bank of China led the charge that day, seeing the weakness as an opportunity to park dollars accumulated through foreign direct investment and peg maintenance into Treasurys. By some estimates within the market, the Chinese authorities have $60 billion in short-term deposits offshore that need to find an investment home.

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