Apart from the market turmoil caused by China doing such a thing, could China flood the bond market to the point of saturation? If that happened, would it be a fart in the thunderstorm of market chaos that would follow such a move?
Well, they already did this in September and it didn’t have that much of an effect. The demand for US debt is still high world wide and IIRC the rate on 10 year treasury notes didn’t change at all when China dumped a bunch and said they weren’t planning to buy back a lot at this time. US debt and notes are still one of the best, most stable investments out there.
BTW, I am not sure China COULD, structurally, saturate the bond market with sales. I’m not a trader though so maybe some other doper can get into this, but I know it took China some time in the fall to off load all the notes the were dumping.
Yes, I forgot that if China is after cash, they want bond demand to go up, not down, but what if it’s a case that the real state of the economy is much worse than they have been letting on and suddenly the jig is up?
The real state of their economy IS worse than they have (officially) been letting on, at least from what I’ve read. But they still need to be able to off load their bonds for the best deal they can get. They have dumped massive amounts of cash into their own stock market melt down, and probably will have to continue to do that. In addition, they have a general slowdown in their other industries, mainly due to their real estate bubble that was supposed to be fixed by their stock market bubble, and that’s going to suck up even more cash to keep things from flying apart.
It will be interesting to see what their stock market does this week, since they took the circuit breakers off. They have screwed this pooch so much that the damn thing can hardly walk, but hopefully they will figure out how to keep it from slamming into the bedrock at several thousand miles per second.
People worry about what would happen to the US if China tried to sell off a lot of their US bonds. But if the price for US bonds tanks as China tries to sell them, what happens to value of China’s unsold bonds?
They don’t want the price to tank because that means the value of the remaining bonds will tank. If you have billions of dollars invested in Asset X, do you want the price of Asset X to crash because you started selling too much Asset X? Yes, Bill Gates could crash the price of Microsoft stock if he started dumping it at below market rates. And he’d lose billions of dollars doing that.
As a dog lover (no, not in **that **way) - ouch. But correct. I think China is going to be the textbook case of why meddling in the markets too much is a bad thing. And the new government is sure not looking very competent at the moment. l
The US is still a safe haven for investors, compared to most other places. China isn’t looking so hot right now; the bloom is off that rose, now that it’s become obvious that Beijing really doesn’t know what it’s doing. Europe doesn’t seem like a very good bet either: Greece is due for another financial crisis when the bailout money runs out, and the Syrian refugee crisis is probably going to cause a financial crisis of its own. Russia’s economy is tanking due to low oil prices.
So, for the forseeable future interest in US bonds should remain pretty strong. Even if they offload a bunch of bonds, I think the market could handle it just fine.