Wednesday, March 24, 2010

Pay Attention

The auction of 5-year treasury bills didn't go so well today. Pay attention everyone: the market is trying to tell you something:

At today’s auction, investors bid for 2.55 times the amount on offer, the lowest since September’s sale. Indirect bidders, a class of investors that includes foreign central banks, purchased 39.7 percent of the notes, the lowest since July.

The auction drew a yield of 2.605 percent, compared with the average forecast of 2.556 percent in a survey of eight of the Federal Reserve’s primary dealers. The gap of 4.9 basis points was the largest since a 5.4 basis point spread in July, according to Bloomberg surveys.

The decline in indirect bids comes as U.S. lawmakers have resumed efforts to force China to allow the value of its currency, the yuan, to appreciate. Senator Charles Schumer, a New York Democrat, said yesterday he will seek to pass legislation before the end of May that would push China to raise the value of its currency.

“I would not be surprised if the low indirect bid had something to do with the Chinese sitting on their hands,” said Joseph Brusuelas, a strategist at Brusuelas Analytics in Stamford.

So what kind of legislation can Chuck Schumer push that would cause the yuan to appreciate? And why are the Chinese "sitting on their hands?"


Palm boy said...

From what I understand, the Feds want China to remove the attachment of the Yuan's value to the dollar, and let the currency's fluctuate freely.

As the US prints more money, the value of the Yuan in comparison to the Dollar rises, triggering a flow of investment, ie, purchases of T-Bills from the US.
That way, we can have our inflation cake and eat it too.

For the Chinese, it doesn't make much sense, because the world market they export to a more expensive Yuan translates to a more expensive product. And then less buisness.

Mr. D said...

Give that man a cigar.