Chinese USD Diversification Continues: First Euro Bonds, Now JGBs

Tyler Durden's picture

Even as the peanut gallery debates whether or not the dollar is the reserve currency of choice for the world, China continues to diversify away from the USD. After last week's news that Beijing had not had enough of Portuguese bonds, in a repeat of the same scenario from January 2011, and was preparing to bid up Eurozone bonds across the curve (aka double down) we now learn that China, or rather third-party London-domiciled banks doing its bidding, is now the actor behind "massive Japanese bond buying" seen over the past month. Per Reuters: "Foreign investors have flocked to Japanese government bonds in the past five weeks, finance ministry data shows and market sources say China was among the main buyers, although a large part of buying was made through banks in London." That said, even Reuters appears unable to get its story straight: "Foreigners bought a net 4.696 trillion yen ($57.7 billion) of Japanese bonds in the five weeks to May 20, a record amount of purchases for any five consecutive weeks since data began to be compiled in its current form in 2005. One source said China appears to be buying the four to five-year sector after having sold a large amount of short-term bills earlier in the month. But other sources said foreign investors, including China, were buying long-dated bonds with less than one year left to maturity, effectively the same as buying short-term bills." Wherever in the curve China is focusing, the fact that it continues to actively buy JGBs after 5 consecutive months of declines in its UST purchases (coupled with the news broken by Zero Hedge that Fed custodial accounts of foreign UST holdings suffered the largest one week drop in almost 4 years) is sending a very clear political message to the US. One that certainly got some airplay when the Treasury once again declined to brand China an FX manipulator, despite rhetoric out of very brave Geithner at the first possible opportunity this week, that China is precisely that.

More from Reuters:

One likely trigger for the shift to the short-term yen market is the fall in yields for dollar government bills since April.

The foreign binge on Japanese government bonds started in the week of April 18-22, shortly after a squeeze in U.S. bills pushed U.S. bill yields lower.

A new deposit insurance rule sparked a torrent of buying in government bills, pushing the U.S. three-month T-bill yield as low as 0.01 percent in early May and below Japanese government bill yields.

The yield spread between the two countries widened to around 0.09 percentage point in early May although it has since come back to around 0.05 percent.

Then came a sharp fall in the euro, which may have also prompted investors to move funds to the yen.

"As the euro started to suffer from debt problems again, some reserve managers could have shifted some of their euro-denominated to assets to the yen," said Makoto Noji, senior strategist at SMBC Nikko Securities.

This was similar to last year when China's foray in the short-term yen market coincided with worries about Greece's ability to pay back debt.

But China quickly moved out of that position, selling a large amount of yen bills in August to take profits after the yen rose. Market players said at that the time China was unlikely to keep a large amount of funds in the yen because yields were low.

Slowly China is realizing the joy of an interlinked fiat world: at best it can rotate out of one insolvent regime into another. The bottom line is that all regimes are insolvent. So the only question is whether or rather when, just like back in April 2009 China dropped the bomb that over the past 6 years it had accumulated secretly 454 tons of gold, will China announce that while it has been rotating in and out of paper, the ultimate source of its $3 trillion in USD reserves will be non-dilutable commodities which handily double up as currencies.

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AUD's picture

China was among the main buyers is only hearsay, I'd say the speculators are buying since they still see Masaaki 'easy' Shirakawa as the chump who will give them their 'profits' risk free.

IdioTsincracY's picture

Exactly right!! The leeches will have their feed anywhere there is a Quantitative weakness.

China, on the other hand, will be compelled to prop up the indebted economies in order not to loose customers, just like a pusher keeping his customers going with the next dose ....

Renfield's picture

China, on the other hand, will be compelled to prop up the indebted economies in order not to lose customers...

A plan that worked so well when they were doing this with the US.

Now they have a reeking pile of worthless US debt, and their next step is to pile up another steaming pile of Euro debt...

Logical. Aren't Asians meant to be *good* with numbers?

disabledvet's picture

you forgot "the JGB's."  depending on how the US plays its cards "it could simply default" and "offer Japan the best nuclear experts on the planet."

IdioTsincracY's picture

I do not think that they are worried about everybody defaulting .... their main goal is raising their standard of living ....

In the end all the doom and gloom will not happen.

Most likely, there will be a global rebalancing ... with a decrease of the standard of living in the western nations, and an increase in the BRICS ones ....

The most 'difficult' part of this will be for the USA to accept the fact that it will lose its first place in many fields ....

as for the rest, we will see if the middle class has the strngth  to demand a reduction in the income disparity between the top 10% ad the rest of the people, to make up for decresing wages, decreasing standard of living, decreasing everything basically, but with increasing costs ....


traderjoe's picture

Yes, and all of that will happen peacefully... /s

DosZap's picture

Most likely, there will be a global rebalancing ... with a decrease of the standard of living in the western nations, and an increase in the BRICS ones ....


Yes sir, and the U.S. is pre-empting the mass exodus already.

Most have noticed a foreskin,and a first born is required now for a new PASSORT.

kito's picture

another one that can't see past his nose. creditors become masters. for china, money lost in the short term is power gained in the long term. just look at greece, the imf will now dictate their domestic policies and own all of their prized possessions. cant wait till maui becomes mao-i

Renfield's picture

"creditors become masters. for china, money lost in the short term is power gained in the long term"

Oh, is that right?

"If you owe the [Chinese] $100 that's your problem. If you owe the [Chinese] $100 million, that's [China's] problem."

(With apologies to J. Paul Getty)

I appreciate your admission about the length of your nose ;-) but I'm sure you're a handsome bloke regardless.

Stormdancer's picture

Does it really matter if, once the reset comes, you own a manufacturing powerhouse capable of producing real goods the world wants and needs?

American manufacturing has been decimated by this dumb like a fox mercantilist gambit and it will take a long hard slog to replace it.  Without it, we have little to trade with the rest of the world once dollar hegemony is broken.

China on the other hand will have a solid foundation from which to launch into the next phase of global trade.  All built with a "dead end" mercantilist strategy.  Dumb like a fox...if they can keep their own imbalance from imploding just a short while longer than the west. 

Even if they implode first, they still have the factories, machine tools, plant and equipment to rebuild with while we're starting from almost from scratch.


They're playing a dangerous game, but then the stakes are quite high.  Some risk is warranted by the potential rewards.  It's interesting that their political and economic interests  are aligned for the moment in the monetary realm.  Purchasing bonds issued by their primary competition for global export business (Germany (EURO), Japan, and Korea) strengthens those currencies, making their exports costlier when compared to Chinese exports whose values are pegged to the dollar.

3 dimensional chess...and they're pretty good at it.

Renfield's picture

Actually I agree that they are in a better position than the 'western' world, due primarily to as you say, their productive manufacturing foundation.

Shifting piles of debt-paper from here to there becomes little more than a game of musical chairs in this competitive devaluation game.

But productivity is always the foundation of a REAL economy, and the country that makes real 'stuff' that people want and use - as opposed to 'services' and FIRE 'industries' - can survive even a global fiat paper implosion. The Chinese also have this reputation for exchanging that debt-paper for real 'stuff' like commodities all over the world, which of course is also good for a real economy, based on productivity. Then they 'win' by making real products that people want and use. It's just a matter of finding the right price (even if that price looks a little 'deflated' after the fiat games are over).

'Stuff' wins over 'services'. If this is what you're saying, then I agree with you.

Stormdancer's picture

...'Stuff' wins over 'services'.

Yes, that was the gist of my argument.  The Chinese are mathematicallly astute enough to have figured out long ago that a fiat currency based on debt is dependent on continuously increasing debt creation for survival.  Implosion is inevitable.

They've been preparing for the inevitable for twenty years at least.  They've done their best to use the dollar system while it lasted.  They've used it to position themselves to dominate the system that replaces the dollar.

It remains to be seen how successful they'll end up being.  They've paid a very heavy toll environmentally.  But, it does seem that the Chinese have an increasing number of tools, strategies and directions to choose from while the west in general and the US in particular have fewer choices.  They strategize while we can do little more than react to the crisis du jour.

Sock Puppet's picture



your analysis makes me quiver.

Crab Cake's picture

China will be demonized, and their production base destroyed. They, the Chinese, will have to wrest control from the same evil bastards we live under. Make no mistake, the US conglomerate empire is on a direct collision course with China. When the shit gets deep they will be the external go to threat, you watch. The oligarchic globalist corporate structure, paired with the US/NATO complex, does three things exceedingly well.... propaganda, espionage, and bombing shit. China will be easy to destabilize, but impossible to truly defeat. My hypothesis is ww3 and nuclear exchange, if trends stay online, and revolution doesn't take hold first. This will be an interesting decade.

disabledvet's picture

"the only path for a policy that devours itself."

DosZap's picture

Even if they implode first, they still have the factories, machine tools, plant and equipment to rebuild with while we're starting from almost from scratch.


I still am amazed that people assume, that TPTB,have/want us to Re-Start from scratch.

They  are/have torn us asunder on purpose, and there is no way we're getting up.

They (the NWO) crew will never allow it.

Stormdancer's picture

Point taken.  I don't believe they'll get everything they want.  There's no assumption on my part that they want anything but total control of a much reduced population.  I just think they'll fall somewhere short of that goal :). 

Mr Lennon Hendrix's picture


Loans are assets...for some god forsaken reason.

blindfaith's picture

China has always wanted to OWN Japan.  Gee, anyone really think the Chinese are doing to simply to make a few bucks or play nice guys.  The Chinese are far and again smarter that westerners dare to admit or realize.  You don't BUY debt with the idea that it is going to loose value or be diluted....not here in this case.  A default, or such massive un-payable debt will force sovereigns to sell off public assets to them.  Don't forget there is more spit on the streets of Beijing than there are guns in Japan, Portugal, Italy, Greece, and the rest of the 'to much in debt to bail' nations, including us...the USA.

Ahmeexnal's picture

It only costs 5 yuan to dig an ounce outta the ground!

JW n FL's picture

you can NOT eat 5 Yaun!

Orly's picture

I did that once...but I was hungry ten minutes later.


High Plains Drifter's picture

12 square miles of brand new empty buildings. another masterpiece brought to you by the chinese.........

HamyWanger's picture

Yes, because it never happened, and couldn't happen in the US. Ah, these rednecks... 

meizu's picture

All brand new buildings are empty, hundreds of millions chinese are still living in old crumbling buildings, these new buildings will be needed when old ones are torn down

High Plains Drifter's picture

well i guess they want to create a chinese middle class in order to be able to afford this type of housing etc. but how can they do this?  i mean why did all of these manufacturers move their factories there for in the first place?  cheap wages and no benefits , right?  chinese middle class?  oh will continue to be like it always has been, the rich and the poor , just like it will be here very soon.

Sock Puppet's picture

Look deeper my friend.  The Chinese are planning for future war or calamity, earthquakes, etc.  Their goals are two fold, create jobs and prevent social unrest.  Look at Japan no housing for displaced Fukishma residents.  China will not have that problem.

High Plains Drifter's picture

i don't think there is any benevolent ideas in the chinese government about its peoples. to them, as it is here, they are merely cattle to be used. now sure, they have more cattle than we do and with their abortion programs in place, they have had some success in stopping or at least attempting to halt their run away population explosion. but the chinese oligarchs in my opinion, the same ones who own this property(probably)since in any communist system there are those who are in control and there are those who are poor, that these men build this stuff because they have to build in order to increase their profits. there seems to be no big plan afoot about all of this. heck , it has been shown on this blog, how the chinese are now tearing down perfectly good buildings and highways so they can build other stuff. it makes no sense. but to them it is like you have said, however, that their peasants need work, or unlike us, they will riot and matter of fact , have rioted many times.  i think they are building to build.  to the chinese , this is like war is to us. if they stop building the entire facade known as the chinese economy would collapse, since this building expansion is a big part of it, and for the united states, we must fight to survive, or at least this out of control government does, because the day war stops and peace comes, the so-called peace dividend, shall we say, is the day this thing called fiat, will die. but war to us, is, at this point, merely a extension of the time of our economic death for any fiat regime that has ever existed only lasted not more than 100 years. that would put its final death in the year 2013 since it started in 1913. ah yes, that good old number 13 again........

meizu's picture

In china old home prices are inflating along with new home prices, more and more chinese living in old homes are selling their old crumbling homes and buy up new homes.

DosZap's picture

I hope they were intelligent enough to use some other countries sheetrock.

Mr Lennon Hendrix's picture

When the Japanese realize they are living in a high radiation zone, they will move there.

High Plains Drifter's picture

japanese mongolians?  genghis would turn over in his grave......when i saw this article , i thought the same thing may have to happen..... 100 million japanese leaving their island for a new home.......

disabledvet's picture

my guess is "the number is around 30" (million).  there is only one nation on earth capable of accepting that level of humanity.

schizo321437's picture

A city with no people?

Sounds like Utopia.

BillyBoy22's picture

Can someone explain to me what China's endgoal is?  If the euro in general and portugal in particular are about to tank, then what use is it to buy loads of g-bonds from the ecb and portugese banks?


Sorry for noob question.

HamyWanger's picture

Profiting from high yields, maintaining their exports and being able to kill the entire West in one shot when they decide to. 

BillyBoy22's picture

"Kill the entire west" as in a massive bond sale/dump right?

RockyRacoon's picture

You do make occasional sense, like now.

Better watch out, folks may start to take you seriously.

cowdiddly's picture

Thats what I thought, First post he ever wrote worth reading. There is hope.

seek's picture

There's always been hope, he's breaking out character right now. The crazy posts from him are all parody. He's one of us, with a twisted, satirical sense of humor that not everyone gets.

Derpin USA's picture

I have noticed this too. It's an amazing troll.

Sock Puppet's picture

All I can say is Hammy inspired my creation.

Manthong's picture

Don't forget control as many hard/strategic commodities as possible.

DosZap's picture

Oh, they do, and are.

They are buying, have bought farmland globally, and mines, you name it.

All the raw materials needed to RULE the world.

With USD Bingo bucks.

Now, who's the FOOL?.

CompassionateFascist's picture

5+ unjunks for the Wanger. Well said.

High Plains Drifter's picture

the same masonic goy network runs china just like it runs almost all, if not all countries in this world now. since that is the truth, then china does not make any unilateral moves unless its heirarchy puppets are given the go ahead to do such. anyone that thinks china is on some quest to feed their nationalistic hopes is dreaming. there is no such thing as nationalism when you have a internationalist infiltration of all goy governments via the masonic networks.

all of these masonic networks in all of the countries of the world, feed back to one place and one source. all leaders in government who are masons cannot be trusted and are most probably traitors. when you see their lips move and as they speak and you watch them move their arms and legs, just remmeber they are puppets on the strings, being manipulated by the hidden hand on the stage of life......this has gone on now for 3000 years. they are pushing hard now for one world government. they are close now. such is life in the 21st century.

old naughty's picture

In-deed, they do, HPD. And you are wise.

China, after all is on the 33 parallel.

Planning and executing according to the agenda. Veep will visit China soon, to be followed by 5G-designate to reciprocate.

In the meantime, keep the merry-go-around turning.

YHC-FTSE's picture

Not a bad question at all. It's merely the extension of the economic cooperation the countries in the EU and China have been developing for decades. I remember going to China in the 90's and seeing VW cars rolling around all over the place. A favour for their favourite customer. 


If you think that China's end-goal is global economic domination, the imposition of their culture, the enslavement of the human race through ideology, and debt, then I'm going to guess that you're American, and you're projecting your own deeds and desires on to China. I reckon the end-game of the Chinese is the same as everyone else: Survive, live well, and get out of poverty while everyone else seem to do the opposite. Clever chaps those Chinese. They were sea-faring merchants when most of Europe lived in caves, and they are still merchants at heart.