Dear CIGAs,

As has been obvious from media releases by Chinese officials in the last 3 weeks, the Chinese continue to hint and state that they will not buy as much US debt in the future. This fact is finally dawning on more and more currency investors. When will it dawn on US treasury bond investors? If there was ever a bubble may I submit that the US Treasury bond market is a huge and unwieldy bubble waiting to implode.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

China Is Losing Its Taste for U.S. Debt
By KEITH BRADSHER
Published: January 7, 2009

HONG KONG — China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.

The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time.

On Tuesday, President-elect Barack Obama predicted the possibility of trillion-dollar deficits “for years to come,” even after an $800 billion stimulus package. Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasuries, which are government i.o.u.’s.

In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September, it surpassed Japan as the largest overseas holder of Treasuries.

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