It is no secret that China’s appetite for Treasuries has been waning. Official figures now bear out Beijing’s stated desire to diversify away from US government debt.
The market impact is likely to be muted for now, given the Federal Reserve’s bond-buying under its “quantitative easing” programme. But what happens when QE2 ends in June? Beijing’s pull-back may then become noticeable.
The US Treasury market occupies the centre of the global financial system. It is the deepest and most liquid bond market in the world, and demand from central banks and institutional investors, including private sector banks and hedge funds, has allowed the American government to finance its multibillion-dollar budget deficits.
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