More talk last night about China getting out of U.S. Treasuries.
On the Q1 conference call for U.S. power major Duke Energy, management discussed the possibility of partnering with Chinese companies to develop electricity assets in North and South America.
Duke CEO Jim Rogers said that Chinese power companies "have demonstrated a great ability to build new [generating] facilities and build them fast, and to build quality facilities." He noted, "Clearly we see partnerships making sense."
Questioned about the rationale for such a partnership, Rogers noted that Chinese companies are looking for ways to improve their returns on the trillions of dollars they have currently tied up in U.S. Treasury bonds.
This theme is almost as old as the commodity bull market itself. The story goes that China at some point will start selling off its massive Treasuries holdings, diversifying into other investments. This will be bad for American interest rates, the dollar and the U.S. economy in general.
But while this theory might make sense on a logical level (yields on Treasuries certainly aren't stellar), the data have yet to bear it out.
This week we got the latest Treasury International Capital System data on foreign purchases of U.S. securities. (Detailing March 2010... Treasury, is it not possible to get this data out quicker?)
Contrary to above supposition, China was a significant buyer of Treasuries. Picking up a net $18.7 billion during the month.
In fact, this was China's second-largest monthly purchase ever. As the chart below shows, the Chinese have been net sellers of Treasuries in only two months since the beginning of 2008. This does not look like a nation bailing out of the market.
Also notable was the fact that global foreign buying of Treasuries came in at a near-record $108.5 billion during March. There is a distinct upward trend to these purchases since beginning of 2009.
Far from waning, the data show a Treasury market getting stronger. Diversification appears to be off the table for the time being.
By. Dave Forest of Notela Resources