STOCK MARKET WATCH -- Tuesday, 29 May 2012

[Demeter]

8. China Mainlined Into U.S. Debt

http://www.economicpopulist.org/content/china-mainlined-us-debt

China is now mainlined directly into U.S. debt. Reuters uncovered an astounding thing. The U.S. Treasury has literally set up a direct line for China to buy U.S. treasuries, bypassing brokers and any third party. China is the only country with this privledge. Those thinking this administration would confront China on currency manipulation, think again. Instead our government gave China real time direct access to dynamically control the value of the Yuan.

China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn't been necessary.

The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.

The change was not announced publicly or in any message to primary dealers.

China directly holds $1.17 trillion in U.S. Treasuries and is the largest foreign holder. There are reports China actually holds much more of U.S. bonds, but hides this fact by going through the U.K. for their additional purchases.

Buying U.S. Treasuries directly doesn't save commission fees for China. More it hides their trading strategies. Reuters notes these advantages by China bypassing the normal channels to bid on U.S. T-bills:

The privilege may help China obtain U.S. debt for a better price by keeping Wall Street's knowledge of its orders to a minimum.

China is preserving the value of specific information about its bidding habits. By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price.

What no one is talking about here is currency manipulation. China must buy U.S. treasuries in order to keep their currency artificially low....