Source's T-ETCs are collateralised with
US Treasury Bills and the swaps are diversified across multiple counterparts.
Over the past six months the spread between 30Y Russian bonds and
US Treasury Bills has contracted 102 bpts.
China's buying of dollars and
US Treasury bills is financing the US deficit at a time when manufacturers in developed countries are looking for a boost from a more competitive dollar against the yuan.
When Lehman Brothers collapsed in October 2008 and the world economy seemed to be on the brink of meltdown, every asset except
US Treasury bills and gold appeared to carry too much risk; the chance of any reward seemed slim.
China, as the largest holder of
US Treasury bills, has been very cautious about the proposals for diluting dollar dominance.
Floating exchange rates were supposed to prevent countries from manipulating their currencies, but, by accumulating large quantities of
US treasury bills, East Asian countries, especially China, kept their exchange rates artificially low.
The kingdom had amassed foreign assets of more than $500bn, and this year more than 50% of its oil revenues were being invested in foreign assets, mainly
US Treasury bills, because it could not spend the petrodollars domestically, a Saudi adviser said.
For instance, the average yield on five-year
US Treasury bills increased from 2.75 percent last week to 2.83 percent last week on news that US consumer prices rose more than expected in January which would be adversely reflected on the value of fixed-income securities.
With the nation's deficit exploding, Swig said the government has sold on its debt and created, in his opinion, a major imbalance in the Chinese market which, he said, has become a depository for
US Treasury Bills.
Conversely, when a German investor buys
US Treasury Bills, that is portfolio investment.
For decades people believed that buying
US treasury bills or bonds meant money in the bag, so to speak.
Foreign investors have been pulling out money from India -- besides other emerging markets -- in June, to safer havens such as
US Treasury bills. The rupee has fallen 11.5 percent in 2013, making it the worst performing currency in major Asian economies.
