Chillin' out till it needs to be funded
US increased its balance sheet by $50 bln just from the $38 bln odd Liquidity Swaps last week to Europe after 8 bln the week before. However its holdings of US treasuries by owners show that a lot of Foreign Central Banks are correcting their over weightage on US Treasuries too, bring down the foreign holdings of US Treasuries by $69 bln this week.
China stopped buying new US Treasuries sometime in October, and Japan while having suggested to China that it would be open to direct Yuan Yen trade and buying Yuan debt for its Central bank holdings from here, has been signing liquidity swaps with all its trading partners including Korea and India this month to reduce the pressure on its currency and resolve any concern on payments. The existing currency swap was expanded 5 times from $13 bln to $70 bln and the new arrangement with India is a $15 bln. China followed on the hint signing swaps with Japan as well as Pakistan and Korea. Except for Taiwan other ASEAN partners led by Singapore may also decide to extend the existing facilities with China
Compared to Japan and Brazil, even Europe seems much less in trouble even as US mutual funds stopped funding European debt cutting their exposure to less than $215 bln. The latest reduction of $9 bln in EU debt has been made up by a consequent increase in US Treasuries, picking up the slack in market sentiment as Treasuries keep climbing from a depressed low with the upturn in market conditions. Though it is not guaranteed, ig again shows that fi you were a Central bank selling any of your assets, there is a lot to do to get you a good price!!
China seem to have liked the idea of Bilateral swaps to promote Yuan trade in case there is pressure on Asia from the EU crisis, while Japan and India seem to be thinking of protecting their currency and trade. US Treasuries may seem to have over extended themselves in Europe but it is actually apossibly smart move to keep Trasuries and short swaps flowing beteen more than 5 countries and the US
The money funds mentioned formed the extended back bon eof the inter bank wholesale market alongwith options in structured Finance that overextended bank capital and made banks reliant on such short term debt as MArch Capital, being even more than 70% of banks’ balance sheets in many cases in 2007