US Treasury Bonds are the investment object of choice for the managers of the huge forex reserves…?

1 Answers

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   Spotty J on Jul 07, 2011

   Treasury Bonds are a good investment as mentioned for several reasons: 1) it is a huge, liquid market, and 2) it is a stable and secure investment, as it’s considered nearly impossible that the US government would default and not pay on those bonds, and 3) the bonds pay interest so it is an interest-bearing means of holding dollar assets and 4) they are denominated (bought and sold) in U.S. dollars, so an entity that has a lot of dollars on hand to manage and that doesn’t want to convert to another currency would fund U.S. Treasury bonds useful.

   Now, because China is a net exporter to the U.S., Chinese firms receive a lot of US dollars in selling their wares, and so Chinese banks and investors end up with those dollars to manage. They tend to invest them in U.S, Treasury bonds for the reasons above, and so Chinese entities are a major holder of such bonds.

   IF U.S. treasury bonds or the U.S. dollar decline in value, that investment will decline in value for the Chinese.