China can now bypass Wall Street when buying US government debt and go straight to the US Department of the Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.
The relationship means the People’s Bank of China buys US debt using a different method than any other central bank in the world.
The other central banks, including the Bank of Japan (BOJ), which has a large appetite for Treasuries, place orders for US debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions.
China, which holds US$1.17 trillion in US Treasuries, still buys some Treasuries through primary dealers, but since June last year, that route has not been necessary.
The documents viewed by reporters show the US Treasury Department has given the Chinese central bank a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June last year.
China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.
The change was not announced publicly or in any message to primary dealers.
“Direct bidding is open to a wide range of investors, but as a matter of general policy we do not comment on individual bidders,” Treasury Department spokesman Matt Anderson said.
While there is been no prohibition on foreign government entities bidding directly, the Treasury’s accommodation of China is unique.
The Treasury’s sales of US debt to China have become part of a politically charged public debate about China’s role as the largest exporter to the US and also the country’s largest creditor.
The privilege may help China obtain US debt for a better price by keeping Wall Street’s knowledge of its orders to a minimum.
Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn’t saving money by cutting out commission fees.
Instead, China is preserving the value of specific information about its bidding habits. By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price.
It is one of several courtesies provided to a buyer in a class by itself in terms of purchasing power. Although the Japanese, for example, own about US$1.1 trillion of Treasuries, their purchasing has been less centralized. Buying by Japan is scattered among institutions, including pension funds, large Japanese banks and the BOJ, without a single entity dominating.
Granting China a direct bidding link is not the first time the Treasury has gone to great lengths to keep its largest client happy.
In 2009, when Treasury officials found China was using special deals with primary dealers to conceal its US debt purchases, the Treasury changed a rule to outlaw those deals, Reuters reported in June last year. However, at the same time it relaxed a reporting requirement to make the Chinese more comfortable with the amended rule.
Another feature of the US-China business relationship is discretion: The Treasury tried to keep its motivation for the 2009 rule change under wraps, Reuters reported.
Documents dealing with China’s new status as a direct bidder again demonstrate the Treasury’s desire for secrecy — in terms of Wall Street and its new direct bidding customer.
To safeguard against hackers, Treasury officials upgraded the system that allows China to access the bidding process.
Then they discussed ways to deflect questions from Wall Street traders that would arise once the auction results began revealing the undeniable presence of a foreign direct bidder.
“Most [members of the public] hold the view that foreign accounts only submit ‘indirect bids’ through primary dealers. This will likely cause significant chatter on the street and many questions will likely come our way,” one US government official wrote in an e-mail viewed by reporters.
In the e-mail, the official suggested providing basic, general answers to questions about who can bid in Treasury auctions.
“For questions more extensive or probing in nature, I think it prudent to direct them to the [US Bureau of the Public Debt’s government securities regulation staff] or Treasury public relations area,” the official wrote.
China’s request to bid directly, according to a former US debt management official who did not want to be identified, came from a confidence that their money managers could buy US debt more efficiently on their own than through Wall Street banks, which can often drive up the price of Treasuries at an auction if they know how much large clients are willing to pay. Such a practice is not specifically illegal, though most traders would deem it unethical.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique