Thursday, June 14, 2007

Floyd Norris: Notions on High & Low Finance

Bond prices plunge one day and soar the next. There were rumors yesterday, when prices leaped, that China was buying a lot of bonds. When prices decline, there is speculation that its appetite for American paper is almost sated. Every month it takes in another $10 billion or so that must be invested somewhere.

Anyone seeking inside information on what China is doing should turn elsewhere. I have none. But I do think it is interesting that this bout of volatility has come as some senators step up the pressure on China to revalue their currency more rapidly. Could this be a gentle (or perhaps, not so gentle) reminder to the United States that China now has the power to change American interest rates, with a bg impact on the American economy, whenever it chooses?

On Friday the U.S. Treasury will release data on international transactions in April. That will provide more information on how much appetite there is for Treasury securities abroad.