Tuesday, May 22, 2012

Treasury Gives China Special Treatment

China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

The relationship means the People's Bank of China now buys U.S. debt using a different method than any other central bank in the world.

All other central banks must continue to buy through primary dealers, such as Goldman Sachs, who can mark up the price of the securities before selling them.

This accommodation to China means a few things:

1. The primary dealers will lose the markup revenue they gained from selling Treasury securities to China.

2. China will gain an edge by not having to pay any markup.

3. Primary dealers will no longer see how much China is, or is not,  buying of any issue.

Thus, the question becomes has the Treasury decided to provide China with a special accommodation so that China gets a better price or is the Treasury trying to hide Chinese buying activities?

Whatever the case, it is an odd move by the Treasury and should be noted.


  1. End run around TBAC? Maybe China was tired of getting front run by Zames.

  2. I read this yesterday on Reuters. Is there any further proof needed that our gov't is insane and purposely indebting us?

    I hope they have planned default in our future, it's the only rational explanation for their behavior.

  3. Hmm. I wonder if this is even legal. For instance, I know that it is illegal for the Fed to directly buy treasuries, I would think that foreign central banks would have the same prohibition. Then again, the Fed paid interest on excess reserves above the lowest yielding treasuries, which is supposed to be illegal.

  4. Maybe it's not to hide how "much" China is buying but in the future to hide how "little" China is buying.

  5. China playing hardball with the US so as to not have Goldman and JPMorgan front-run all of their transactions. This is a win for China, as they hold the reins on what the treasury can and cannot do at this point.

  6. to my knowledge PDs are not allowed to charge any markup to foreign governments.

    and wasn't it just the past few months when the crisis du jour was that china wasn't actually buying treasuries anymore? as far as i can see what they're hiding here is the fact that they don't want any. that is obviously in the treasury's interest.

  7. I am sure that china will take the lead after the USA collapse! BRICS are very powerful, they together can break the gegemony of America down!

  8. huh China is able to buy everyone here, so America just tries to cope with it somehow)

  9. This is a win for China, as they hold the reins on what the treasury can and cannot do at this point.