The safety of US government securities
On Monday we saw a rise in the EURUSD pair as the EUR was seen as the most likely place for China to park it's money if it took the extreme action of dumping it's $1.1 trillion stock of US government securities. So, in the event that China and US relations soured further and China did dump it's US Government securties what might happen to the US debt market?
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Treasuries to rise, if China sells
It is counterintuitive for sure, but if China sells then there will be a huge rush to move to the haven of US debt. I came across a Bloomberg piece yesterday which highlighted a time when investors sought the security of US debt, even when that debt is the source of that uncertainity. The time cited was when the S&P cut the U.S. credit rating in August 2011. The Bloomberg treasuries index rallied 6.5% that quarter. So, is China do sell their US debt it is reasonable to expect, though counterintuitive, that US treasuries to rise.
