Friday, September 23, 2005


China Demand For US Paper In Doubt

The Chinese are diversifying away from the US dollar. "Treasury prices fell Friday in anticipation China, the second largest foreign holder of U.S. debt behind Japan, could curb its purchases as it took another step toward currency flexibility."

"China may need fewer of the U.S. Treasurys it buys with dollar proceeds from transactions historically used to hold down the value of its yuan. A cheaper yuan, relative to the dollar in particular, makes Chinese goods more competitive. China earlier this year dropped a rigid, decade-long currency peg to the dollar."

"On Friday morning, the benchmark 10-year Treasury note was down 1/4, or $2.50 for each $1,000 in securities at face value, at 100 9/32. The drop in price lifted its yield, a reference for mortgage and corporate borrowing rates, to 4.21% vs. 4.18% Thursday."

"'There is ample upside room for yields rise to 4.3% on top without encountering significant resistance,' said analysts at Ried Thunberg ICAP. The 30-year bond fell 13/32 to 113 11/32, yielding 4.49% vs. 4.46%. The 2-year note was off 3/32 at 100 even, yielding 3.99% vs. 3.94%."

"China said Friday it will widen from 1.5% to 3% the band in which the yuan trades against the euro, yen and the Hong Kong dollar. Some analysts said the move came as China's currency policies are likely to feature at Washington meetings of the Group of Seven largest industrialized nations beginning Friday."

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