Floyd Norris notes that China "was a net seller of Treasury securities
in May" and says that it "unloaded about $6.6 billion" of them,
across the yield curve. He
asks: "Could the newfound hesitance to buy more Treasuries be a reaction
to increasing protectionist sentiment in this country?"
No.
For one thing, China isn’t actually selling anything. The first thing anybody
writing about Chinese foreign-currency reserves should do is go and see what
Brad Setser is
saying. For one thing, Brad clarifies that China "allowed its total
holdings to fall by not reinvesting maturing bonds and bills," rather than
actually selling anything. But more to the point, Brad is very suspicious
about the whole data release. "With Russia and China I know not to trust
the TIC data," he says. "I fully expect to see a large upward revision
in Russian and Chinese US holdings when the next survey data is released."
What’s more, Norris wonders why the Chinese government might be buying fewer
Treasuries and more Agency bonds. Might it be because that’s exactly what
the Bush Administration is asking it to do? Bloomberg’s Josephine
Lau reports:
The Bush administration is urging China’s central bank to buy more government-backed
mortgage bonds in an effort to sustain financing for U.S. home loans.
U.S. Department of Housing and Urban Development Secretary Alphonso Jackson
is in Beijing to persuade the Chinese central bank to buy more securities
from Ginnie Mae, a corporation under HUD that guarantees $417 billion in federally
insured, fixed-rate mortgages.
I was kinda joking when I proposed
that China might come in to support the CDO market. But it seems that the Bush
administration is very serious about it getting the country to support the market
in mortgage-backed securities.