by Ambrose Evans-Pritchard: Credit
Markets Flash Hottest Warning Signal Since Crisis
Evidence is mounting that Chinese sales of US Treasury bonds over
recent months are intended as a warning shot to Washington over
escalating political disputes rather than being part of a routine
portfolio shift as thought at first.
A front-page story in the state’s China Information News said
$34bn sale of US bonds in December was a "commendable"
move. The article was republished by the National
Bureau of Statistics, giving it a stronger imprimatur.
It follows a piece last week in China Daily, the Politburo’s
voice, citing an official from the Chinese Academy of Sciences praising
the move to "slash" holdings of US debt. This was published
on the same day that US President Barack Obama received the Dalai
Lama at the White House, defying protests from Beijing.
"There are ongoing spats between the US and China on so many
fronts so you have to assume that this is some sort of implicit
threat," said Neil Mellor, a currency expert at the Bank of
New York Mellon, who cautioned that it can be hard to read the complex
signals from China.
"We still think China will have to continue buying US Treasuries
by the bucket load. Where else can they invest in a liquid market.
The euro has become a tarnished currency," he said.