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How China Trades US Treasurys When It Wages Currency War
Ever wondered how a nation wages a currency war? As Reuters reports, Chinese state-owned banks were selling dollars on behalf of the central bank to stabilize the yuan around 6.43 against the dollar on Wednesday, foreign exchange traders in Shanghai said, as the devaluation collapse got a little out of hand. This follows wholesale dollar-asset buying to weaken the Yuan. But that leaves the question, how did they get the dollars? As the chart below shows, by trading Treasuries...
As the chart shows, when China wants to weaken the Yuan, it funds US Treasury purchases by buying USDs; when China wants to strengthen the Yuan, it sells Treasuries, receives USDs and sells the USDs for Yuan...
The bottom line is that if one expects China to continue to allow the Yuan to depreciate, then Treasury yields will continue to tumble.
Charts: Bloomberg
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imo treasury yields will continue to tumble no matter what china does.
So they deserve more cash for their dollars in their eyes.
Wait, what? If they are selling treasuries, yeilds should be RISING! This means that the Fed or some other central bank is likely gobbling up more treasuries than China is dumping. This has some dramatic implications if it should continue.
they needed to weaken the yuan so they bought treasuries...
reading is good, comprehension is even better.
still a bullshit shit-show either way.
China puts China first, imagine that......
Reading comprehension is difficult: "As the chart shows, when China wants to weaken the Yuan, it funds US Treasury purchases by buying USDs (green circles); when China wants to strengthen the Yuan, it sells Treasuries, receives USDs and sells the USDs for Yuan (red circle)..."
Hey China: comprehend this!
Exactly. This is why I was confused with this comment (although slightly different issue) http://www.zerohedge.com/news/2015-08-11/dow-death-cross-es-first-time-4...,... and I still remain so...
I was anticipating the opposite (i.e. if there is a flight to safety [US Bonds]), shouldn't the bond price rise and thus yield falls?
No, because now they would be paying more for the same treasury, if they are still buying US treasuries, which they haven't for quite some time now.
Sells Fortress assets to hold the line on capital flight?
WeEeeeeeee
Well guys, is it 'On like Donky Kong' or is this just another market tease by the FED who will come in with massive QE within days/weeks to make it all better? Also, has China said, 'fuck it, we are not playing the western ponzi anymore?' I 'think' something has fundamentally changed in the 'big game.' Someone has decided to not play nice anymore.
The fiat bubble is such a shitshow.
fiat fart bubbles..
So, same as it ever was then...
(at least since 1971)
You don't give me SDR,huh?
I'll give you a taste of SDR then
to the point, indeed
Someone just interrupted Obongo watching Flavor Flav best hits on VH1 and drew this on an etch-a-sketch for him. He asked, which country owns the Yuan?
Wait 'til Jan 2017 they will get a lesson from the Donald...
Treasuries, yuan, fiat dollars, electronic entries...these have all been considered "money" by humans for thousands of years.
so when China buys Treasuries and the Yuan falls, you will blame her for waging a currency war and engaging in mercantilist beggar-thy-neighbour policies. When it sells the Treasuries and the Yuan rises, you will probably also blame her for selling off your debt and pushing up yields. I have a sense the US will blame her current mess on China no matter what. Or do I miss something fundamental here ?
Even Trump can blame China for his hair, what did you expect?
You got it like it is!
And just who do you think China is blaming? Nobody owns their own shit.
It would be better for my portfolio if they were to buy gold to weaken the yuan.
^^^this. china knows that it is Global Weimar...
They are building real shit and investing in the technology to survive the coming world war.
Not so fast! The dollar has been going down the same time against the Euro! At this very moment it is down 1.65% compared to the rate at 4 PM EST yesterday.
Something else please!
the yuan use to be pegged to the dollar
now it appears, the dollar is pegged to the yuan ..
same shit
different day...
Nothing new. Every CB tries to goose the USD via treasuries. It's a thing.
wonder if the "goose"
is really just a "black swan" in drag...
This is how systems (in general) collapse.
Not enough people understand what is going on to make an informed choice about outcomes.
First it starts with "Let's wait and see."
Then it turns to "What's could happen next?"
Finally, "Fuck That!"
A smaller and smaller pool of players are trained to ride this bronco.
Black Swans happen because the gate opens, there is no rider on the bull and only the rodeo clowns are present.
I have not encountered one informed person that can predict these "markets" in five years.
You can't trade into this chaos and you can't trade out of it either when there are smaller secret pools of information guiding decision making.
whack-a-mole
whack-a-mole
How do you put a rating on U.S. Treasuries when they are being bought by countries like Japan and China that have debauched their currencies and turn around and by U.S. Securities with a bunch of massively counterfeited fiat paper garbage?
the 10 year is going to soon make new historic lows. i'm waiting to refinance my 3.625% 20-year fixed mortgage into a 2.5% 15-year instrument. things are so backwards you will spend more getting a 5-year ARM than a 15-year fixed.
Wanna bet that the U.S. Trashuries China buys to weaken the yuan are only the shortest term ones?
Longer term U.S. Trashuries are like rubbers in a torn pkg. Really wanna risk it?
never mind the explosion. how about the fucking awesome ramp job going on on the SnP and the fucking DAQ!!?
hate to say it, but, ZH called the bottom....again.
OK look I'm not nearly as smart as the rest of you that comment here but I'd like too add my two yuan anyway. To me this is a ploy by China, they know that the west doesn't plan well and mostly reacts to things. The west will respond to this move with some knee-jerk and That will makes things even worse. By it's own hand the west will do Chinas bidding, what exactly that will entail I haven't a clue. I just believe China is very clever, and everything they do is for a later gain, with the goal of beating the west at it's own game, setting it up to shoot itself in the face/foot. But then I'm wrong a lot. Enjoy your day everyone!
They've been doing this since 1982. Look at trade balance and 10Y yield before and after that year.