Steer clear of US debt, expert warns

Treasuries follow the movement of leveraged money flows over the short term. Heavy inflows in late 2010 and early 2011 has provided support to the bond market at a critical juncture.

US Treasury Bond 20YR+ (TLT) And Bond Diffusion Index (DI)


Someone or some entity has to fill the void with the slow withdrawal of the Chinese. This is where QE2 and QE3 comes into play.

Headline: Steer clear of US debt, expert warns

China, the largest US creditor, should stop buying US Treasuries because the "cost" of lending to a nation that may face a default on its debt is too high, said former Chinese central bank adviser Yu Yongding.

The US may reach its congressionally-mandated debt limit of $14.3 trillion in a few months, which could lead to a default, Yu said on Thursday. If the US were a euro-zone nation, a default or bailout would have happened long ago, said Yu, who is president of the China Society of World Economics and a former adviser to the People's Bank of China.

"China has kept on lending money to the US to keep its export machine going, and to prevent losses" on its holdings of Treasuries, said Yu. "Perhaps it is too late to do anything about the existing stock without causing a serious political and financial backlash. But at least China should stop continuing building up its holdings."

Source: chinadaily.com.cn