Thoughts of the Day, from John Humbert

January 5, 2011 |

The Chinese are increasingly buying Euro debt and will soon abandon the Dollar, which they no longer trust. A Reader.

I would defer to those who know much more about this topic than me but I wanted to make the following points:

The Chinese have a vested interest in keeping the US Dollar and bond markets afloat.

The US is still, while it will surely change in the future, the world's reserve currency.

The Chinese, so far, have bought relatively small amounts of peripheral debt.

Even if the Europeans were to restructure/default on their debt it would be only a short term solution as the deficits are structural, not cyclical.

Since July Spanish 10 year spreads have gone from approximately 140bps over German Bunds to 240bps over bunds. 5yr CDS has gone from 180bp to 350bp.

Recent Posts