As China Dumps Treasuries, World Sees No Better Place for Refuge
All signs suggest that’s just what is happening. In December, the People’s Bank of China burned a record amount of its foreign-exchange reserves to stem a plummet in the yuan as overseas investment -- which fueled China’s two-decade long boom -- exits the country. Last week, traders also saw signs in the swaps market of possible Treasuries selling by China.
The People’s Bank of China didn’t reply to a fax seeking comment.
The big draw-down in reserves and the surprise weakening of the yuan is fueling concern the slowdown in China, one of the biggest engines of global growth, is even worse than most anticipate and will drag down the rest of the world. In December, economists surveyed by Bloomberg said China’s economy, second only to the U.S. in size, will grow 6.5 percent this year, which would be the least since 1990.
To BlackRock, that takeaway is far more important to debt investors than any temporary supply-demand issues raised by China’s sales of Treasuries.
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