US treasury allows special treatment for China in bond buying process.

Discussion in 'Economics' started by Grandluxe, May 21, 2012.

  1. NEW YORK (Reuters) - China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. 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 U.S. debt using a different method than any other central bank in the world.

    The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. 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 $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn't been necessary.

    While there is been no prohibition on foreign government entities bidding directly, the Treasury's accommodation of China is unique.

    The privilege may help China obtain U.S. debt for a better price by keeping Wall Street's knowledge of its orders to a minimum.