PETER SCHIFF

PETER SCHIFF

Monday, June 1, 2009

Treasuries, Dollar ‘Only Game in Town’ as China Buys

By Daniel Kruger and Susanne Walker

June 1 (Bloomberg) -- For all the hand-wringing over the dollar’s slide, the expanding U.S. deficit and the nation’s AAA credit rating, the bond market shows international demand for American financial assets is as high as ever.

The Federal Reserve’s holdings of Treasuries on behalf of central banks and institutions from China to Norway rose by $68.8 billion, or 3.3 percent, in May, the third most on record, data compiled by Bloomberg show. The Treasury said bidding from foreigners was above average at its $101 billion of note auctions last week.

U.S. government securities have tumbled 4.3 percent so far this year, the worst performance since Merrill Lynch & Co. began tracking returns in 1978, as so-called bond vigilantes drove up yields to punish President Barack Obama for quadrupling the budget shortfall to $1.85 trillion. The purchases by foreigners show that, at least for now, there’s little chance of buyers abandoning the U.S. or threatening the dollar’s status as the world’s reserve currency.

“The U.S. Treasury market is the widest, deepest, most actively traded market in the world,” said Jeffrey Caughron, an associate partner in Oklahoma City at The Baker Group Ltd., which advises community banks investing $20 billion of assets. “There’s really no other game in town.”
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