The Dance of Debt--China and the United States

Expert: Joseph Trevisani, Chief Market Analyst at FX Solutions
Moderator: Maud Gilson

Summary:
When yields on the 10 Year Treasury note were climbing to 4.0% last spring bond traders fears were focused three items: the Federal Reserve’s liquidity provisions, the Obama administration’s ten year deficit projections and the inflationary potential of both programs. The collapse in Treasury prices prompted the Fed’s entry into the Treasury market. Its $300 billon program to purchase government debt led to suspicions that the US Government had embarked on direct monetization of its debt, printing dollars to make up for the revenues it no longer had.

Chinese officials warned the US government to be mindful of its status as the world's largest holder of US debt and cautioned Washington to act as a careful custodian of its currency. But rhetoric aside, the Chinese had reasons of their own to fear what would have been a dangerous fall in the Treasury markets and the consequent rise in American interest rates.