Thursday, March 27, 2008

Well that is game over…

S Korea pension fund shuns US debt

The world’s fifth-largest pension fund will no longer buy US Treasuries because yields are too low. The move signals what could be a big shift by financial institutions away from US government debt into higher-yielding assets. South Korea’s National Pension Service, which has $220bn in assets, said on Wednesday it wanted to broaden its range of overseas investments. Central banks from 16 Asian countries said last weekend at a meeting in Jakarta that they might invest more of their $1,000bn of official reserves in one another’s sovereign bonds instead of US Treasuries, given the dollar’s volatility. “[The Korean decision] is symptomatic of the times and the problems that the US is facing,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore.

Posted by lvmreader @ 02:28 PM (785 views)
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2 thoughts on “Well that is game over…

  • This is a another significant step.

    The countries/institutions moving away from the dollar will become more significant in the next few months.

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  • It has been irrational for the tiger economies to hold US treasuries for some time now – the massive US trade deficit meant that their currencies could only rise against the greenback, thereby losing them money. Why this hasn’t happened sooner is a bit of a puzzle, but for the US economy, it is a potentially deadly development that could spark a massive run on treasuries.

    We would not be immune, and gilts would crash as well. (the sovereign debt in most other developed countries would share the same fate)

    The net result? – the Fed, the BOE and ECB would have little option to push up interest rates, probably to levels not seen for many years.

    There is a real possibility of interest rates going to extreme highs for a while…

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