THE MONETIZING MONSTER WILL CATCH YOU

GREETINGS,

NOW I WAS LOOKING AT HOW WORLD STOCKS TOOK A HIT MONDAY .ESPECIALLY WALLSTREET!AFTER THINKING ABOUT THAT SOMETHING ELSE CAME TO MIND.DO REMEMBER HOW AMERICA HAD TO HAVE THE FED TO BUY UP SOME DEBT…DO YOU REMEMBER WHEN AMERICA HAD A TRIAL RUN ON DEBT PURCHASES LEADING UP TO SEPT 28-30,THE NEW FISCAL YEAR AND DID NOT RECEIVE ONE BID ON ANY SALE OF OVER $75,000,000,000(BILLION) WORTH OF DEBT BONDS?YET ALL OF A SUDDEN AS THE STOCK MARKET DECLINES OUT OF THE BLUE THEY ARE TELLING PEOPLE THAT CHINA HAS STARTING BACK BUYING MASSIVE AMOUNTS OF U.S. DEBT.THIS IS LUDICROUS! JUST READ THIS ARTICLE THEN FOLLOW IT UP BY THE THREAD THEN TELL ME WHAT YOU THINK.—-“China Buys Treasuries, Proving Dollar Demise Overdone (Update3)
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By Daniel Kruger and Anchalee Worrachate

Aug. 17 (Bloomberg) — For the first time since the start of the global financial crisis, the U.S. government is breaking its reliance on short-term debt as foreign buyers pile into longer-term securities.

When the U.S. raised $75 billion last week, a group that includes international investors purchased a record amount of 3- year notes, the biggest share of 10-year notes since 2005 and almost half of the 30-year bonds sold, according to Treasury data. That helped extend the average maturity of U.S. debt from a 25-year low in the second quarter and showed diminishing concerns over the record U.S. budget deficit and inflation.

“Long-dated Treasuries are fantastic assets to have,” said Stuart Thomson, a fixed-income fund manager at Ignis Asset Management, which oversees the equivalent of $100 billion from Glasgow. “I have every reason to believe long bonds will rally. Inflation is subdued, and the Fed made it very clear they expect it to remain low.”

Treasury Secretary Timothy Geithner locked in long-term borrowing costs at rates near the lowest in six decades just days before the government said the consumer price index was unchanged in July. Costs fell 2.1 percent from a year earlier, the biggest 12 month drop since 1950, even as reports on employment and homes sales showed the economy is recovering from the steepest contraction in more than six decades.

Geithner, 48, a former Federal Reserve Bank of New York president, is selling a record amount of debt this year to fund the $1.85 trillion deficit widened by President Barack Obama’s $787 billion stimulus plan.

Emergency Funding

Treasury data shows that the government issued $1.9 trillion in debt maturing in one year or less in the fourth quarter as it pumped money into the financial system after the collapse of Lehman Brothers Holdings Inc. in September worsened the deepest financial crisis since the Great Depression.

While foreign investors such as China — whose $776.4 billion of holdings makes it the biggest overseas holder of Treasuries — plan to diversify reserves with International Monetary Fund debt, their holdings of U.S. securities are rising, according to government data.

The world’s most populous nation boosted U.S. government debt 6.7 percent this year after a 52 percent increase in 2008, Treasury data show. China bought $55.5 billion in long-term Treasuries through June, increasing those holdings by 9.9 percent to $617.7 billion, the Treasury data showed today. China’s bill holdings have declined $6.5 billion, or 3.9 percent, to $158.7 billion during the period.

‘Out The Curve’

China’s holdings of notes and bonds climbed $26.6 billion in June to $617.7 billion, a 4.5 percent increase, while bill holdings fell 25 percent to $158.7 billion, Treasury data showed today.

“I definitely think China’s moving out the curve,” said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Securities USA LLC, a unit of the Zurich-based bank and one of 18 primary dealers that trade with the Fed. “It’s part relative value, partly a bit more confidence in the Fed and the Treasury and the dollar.”

The 10-year Treasury yield rose to 4 percent in June from 2.05 percent at the start of the year as the U.S. sold $963 billion in notes and bonds in the first half, the most ever for the period. The government will issue $1.1 trillion in the second half, according to a forecast by Barclays Plc.

Overseas Investment

Foreign holdings of government debt increased 9.9 percent through June to $3.38 trillion, even as yields were rising and Treasuries lost a record 4.5 percent in the first half, according to Merrill Lynch & Co. indexes. Overseas investment jumped 30 percent in 2008 to $3.08 trillion as yields plunged to a five-decade low following Lehman’s collapse in the world’s biggest bankruptcy, according to Treasury data.

International buying is helping the U.S. currency as the Federal Reserve keeps rates near zero to lift the nation out of recession.

The Dollar Index, which measures its value against the euro, yen and four other major currencies, is 12 percent above the record low of 70.698 reached in March 2008. The greenback will strengthen against the euro and yen this year, according to strategist forecasts in separate Bloomberg News surveys.

Through August, so-called indirect bidders, which include foreign central banks, acquired 32.9 percent of the $156 billion of 10-year Treasuries sold this year, compared with 25.6 percent of the $114 billion auctioned in 2008. They also took 42.4 percent of the $282 billion issued in two-year auctions since Jan. 1, compared with 29.2 percent of $373 billion in 2008.

Falling Yields

Yields on 10-year notes fell 28 basis points last week to 3.57 percent, the biggest five-day decline since the period ended Dec. 19, according to BGCantor Market Data. A basis point is 0.01 percentage point.

The yield dropped eight basis points to 3.49 percent today at 10:17 a.m. in New York.

Fed Chairman Ben S. Bernanke’s decision to wind down the central bank’s $300 billion of Treasury bond purchases didn’t diminished foreign appetite for longer-term securities last week. Policy makers extended the program to October from next month to reduce its market impact, the central bank said in a statement Aug. 12.

Indirect bidders bought 45.7 percent of the $23 billion in 10-year notes sold just before the conclusion of the Fed’s policy meeting. They bought 48.1 percent of the record $15 billion in 30-year bonds sold the next day, higher than the average of 32.8 percent at the past 10 auctions.

Custodial Holdings

The Fed’s custodial holdings of Treasuries for foreign central banks climbed 20 percent this year to $2.03 trillion after rising 39 percent in 2008.

“Over the next 10 years our average maturity would increase from roughly 50 to 49 months that we have now, to over 68 to 70 months over the next 10 years,” Matthew Rutherford, the Treasury’s deputy assistant secretary for federal finance, said in Washington on Aug. 5.

“That’s all hypothetical,” he said during a press conference. “But at the same time, we are targeting the higher average maturity.”

The average rose to 56 months in the second quarter of 2008 before emergency bill sales pushed the level down to 49 months in the final quarter of last year. That was the lowest level since 48 months in the second quarter of 1983, when yields were dropping from their record high levels of 1981.

Auctions are likely to rise in a “gradual manner” in coming months, the Treasury said in an Aug. 5 statement when it announced the record $75 billion quarterly refunding.

‘Growth Path’

“They’ve put the average maturity on a growth path that’s going to be with us for a while,” said Louis Crandall, the chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

The need to fund programs such as Medicare, which will rise in cost as the elderly population increases, is a reason the government must lock in long-term debt at low rates, Crandall said. “Given the uncertainty about how much the government has to borrow, the more certainty the better.”

Treasury investors will face more risk through 2012 as the government expands long-term debt sales, boosting price sensitivity to changes in yields, according to an Aug. 7 report by Barclays strategist Anshul Pradhan.

Some international investors are avoiding extending the maturity of their holdings to curb that risk.

“The bottom line is we like short-dated Treasuries,” said David Scammell, who helps oversee $158 billion at Schroder Investment Management Ltd. in London.

‘Strategic Overweight’

Other foreign investors favor non-U.S. debt. U.K. gilts replaced Treasuries as the largest bond holding of Norway’s 2.39 trillion-krone ($393 billion) Government Pension Fund – Global, which manages the country’s oil and gas revenue, the central bank said Aug. 14.

“In both the equity and fixed-income portfolios, the fund has a strategic overweight of European investments relative to the size of the markets,” Norges Bank Investment Management, which oversees the central bank’s assets, said in a statement. “This means there will be a tendency for large European companies and bond issuers to dominate the list of the fund’s largest investments.”

Fed policy makers in their statement on Aug. 12 retained a pledge to keep interest rates near a record low for an “extended period” even as they said the economy is “leveling out.”

Gross domestic product shrank at a smaller-than-forecast 1 percent annual pace in the second quarter, Commerce Department figures showed Aug. 1. The economy contracted 3.9 percent in the past year, the worst slump since the 1930s.

Marketable Debt

Obama has pushed the nation’s marketable debt to an unprecedented $6.78 trillion and the budget shortfall will reach $1.85 trillion in the year ending Sept. 30, equivalent to 13 percent of the nation’s economy, according to the Congressional Budget Office.

Goldman Sachs Group Inc., another primary dealer, forecasts that the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010.

The U.S. deficit reached a record for the first 10 months of the fiscal year and broke a monthly high for July as the recession curbed revenue and the government raised spending to rejuvenate the economy.

The shortfall for the fiscal year that ends Sept. 30 totaled $1.27 trillion, compared with a $389 billion year-to date gap in 2008, the Treasury said Aug. 12. The excess of spending over revenue for July climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history.

Attractive Asset

Record spending to restart the economy isn’t preventing Richard Batty, global investment strategist at Standard Life Investments in Edinburgh, from buying Treasury debt for the long haul.

“We like long-dated Treasuries,” said Batty, whose firm manages $200 billion. “We’ve been overweight them and see absolutely no reason to change that. Underlying inflation in the U.S. is moderating, and that makes this asset attractive.”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

Last Updated: August 17, 2009 10:27 EDT “———————NOW HERE’S THE THREAD LINK; youtube ———

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