Monday, March 31, 2008

South Korea to NOT purchase Treasuries moving forward

This came out late last week and is worth noting....VERY important...

The Federal Reserve has so debased the dollar and pandered to Wall Street's calls for lower interest rates that foreign investors have finally begun to shun U.S. government debt. The Financial Times reports a South Korean pension fund -- the fifth largest in the world -- will stop buying Treasuries.

Money managers from pension funds to central banks must seek out higher yielding assets. The shift in foreign ownership will not happen overnight. But as long as the Fed and Department of the Treasury continue to support policies that weaken the dollar, the trend will gain steam

The fund holds only $14 billion in Treasuries, but increasing demand for withdrawals are forcing it to seek better returns.

If central banks rotate investments from Treasuries to other sovereign debt, rates will rise in the Treasury market, as sellers offer higher yields to attract potential buyers. The dollar will strengthen and asset prices will fall across the board. Higher interest rates will impede already stagnant economic growth. Asian nations hold more than half the total foreign-owned U.S. government debt. Add in OPEC and other developing countries and that number jumps to almost 70%.

Dan Ross



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