Sign In

Search News & Quotes















Exclusive: U.S. lets China bypass Wall Street for Treasury orders
Recommend 11086 recommendations. Sign Up to see what your friends recommend. Tweet 1,097



Share this

Email Print Related News

Blind Chinese activist Chen arrives in New York
By Emily Flitter
NEW YORK | Mon May 21, 2012 3:35pm EDT Sun, May 20 2012

(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.
Counterparties: Today's Best Links

Blind Chinese activist arrives in United States
Sat, May 19 2012

China cries foul after U.S. sets tariffs on solar imports
Fri, May 18 2012

The relationship means the People's Bank of China buys U.S. debt using a Thu, May 17 2012 different method than any other central bank in the world. Europe's banks on 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. The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

Spain beset by bank crisis, downgrades, bond pressure the brink
Thu, May 17 2012

Analysis & Opinion How to resist Big Brother 2.0 Essential reading: Tax tension in Washington, and more

How the iPad saved Greece billions
When Greece faced a tense, massive debt restructuring earlier this year, an entrepreneur used iPads to connect 100,000 bondholders, saving billions. Read more at Counterparties

Related Topics

JPMorgan's rivals cashed in on bank's bad bet Congress speaks at a 10th grade level Sign up for the Counterparties newsletter!

World » China can now participate in auctions without placing bids through primary China » 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.

converted by Web2PDFConvert.com

Follow Reuters

"Direct bidding is open to a wide range of investors, but as a matter of general policy we do not comment on individual bidders," said Matt Anderson, a Treasury Department spokesman. 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 U.S. debt to China have become part of a politically charged public debate about China's role as the largest exporter to the United States and also the country's largest creditor.

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. 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 $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 Bank of Japan, without a single entity dominating. Granting China a direct bidding link is not the first time 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 U.S. debt purchases, the Treasury changed a rule to outlaw those deals, Reuters reported last June. But at the same time it relaxed a reporting requirement to make the Chinese more comfortable with the amended rule. Another feature of the U.S.-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.

1 2 3 4 5

Wall Street struggles to find Facebook's worth
22 May 2012

SEC, FINRAto review Facebook issues, Nasdaq sued
| 22 May 2012

Exclusive: Massachusetts subpoenas Morgan Stanley for Facebook
22 May 2012

Facebook, banks sued over pre-IPO analyst calls
| 9:50am EDT

Regulators, investors turn up heat over Facebook IPO
| 7:28am EDT


173 148 118

Iran attack decision nears, Israeli elite locks down

Exclusive: U.S. lets China bypass Wall Street for Treasury orders

Obama presses ailing Europe to focus on growth

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 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," wrote one government official in an email viewed by Reuters. In the email, the official suggested providing basic, general answers to questions about who can bid in Treasury actions. "For questions more extensive or probing in nature, I think it prudent to direct them to the or Treasury public relations area," the official wrote. The granting to China of direct bidder status may be controversial because some government officials are concerned that China has gained too much leverage over the United States through its large Treasury holdings. For example, economist Brad Setser, who is a member of the National Economic Council and has also served on the National Security Council, has argued China's large Treasury holdings pose a national security threat.

Famous "spike through brain" case yields new insights for scientists
Tue, May 22 2012

Alook at the UK’s most beautiful face
Thu, May 10 2012

Apple plans fatter iPhone 5 to choke market-hungry Samsung
Thu, May 17 2012

Recommended Newsletters

Writing for the Council on Foreign Relations in 2009, Setser posited that China's massive U.S. debt holdings gave it power over U.S. policy via the threat of a swift, large sale of U.S. debt that could send the market into turmoil and drive up interest rates. But Treasury officials have long maintained that U.S. debt sales to China are kept separate from politics in a business relationship that benefits both countries. The Chinese use Treasuries to house the dollars they receive from selling goods to the United States, while the U.S. government is happy to see such strong demand for its debt because it keeps interest rates low. A spokesman for the Chinese embassy in Washington did not respond to calls and emails seeking
converted by Web2PDFConvert.com

Aquick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.

The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.

A spokesman for the Chinese embassy in Washington did not respond to calls and emails seeking comment. The United States has, however, displayed increasing anxiety about China as a cybersecurity threat. The change Treasury officials made to their direct bidding system before allowing access to China was to limit access to the system to a specially designed private network connection controlled by the Treasury. China is among the most sensitive topics for bankers and government officials who court the country as a financial client because of its size and importance, and none would agree to comment on the record for this story. A former debt management official at the Treasury who did not want to be identified said that as China's experience in the U.S. Treasury market has deepened over time, Chinese officials may have felt more comfortable taking the reins in the management of their holdings. Their request to bid directly, in his view, came from a confidence that their money managers could buy U.S. 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 that is not specifically illegal, though most traders would deem it unethical. Evidence of China's growing sophistication as a money manager in the U.S. markets is clear in its expansion of operations in New York. Its money management arm, the State Administration for Foreign Exchange (commonly called SAFE), has an office in Midtown Manhattan and a seasoned chief investment officer -- former Pacific Investment Management Co derivatives head Changhong Zhu -- in Beijing. A woman who answered the phone at SAFE's New York office said no one in the office was authorized to talk to the media. (Editing by Martin Howell and Steve Orlofsky)
Recommend 11086 recommendations. Sign Up to see what your friends recommend.

Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.
SUBSCRIBE Full List of Available Newsletters


Reuters Photojournalism
Our day's top images, in-depth photo essays and offbeat slices of life. See the best of Reuters photography. See more | Photo caption

Maxim Hot 100
The world's most beautiful women as chosen by Maxim readers. Slideshow

Joplin, one year after
May 22 marks the one year anniversary of a deadly tornado that ripped through Joplin, Missouri, killing 161 people. Slideshow Tweet this Link this Share this Digg this Email Reprints

After reading this article, people also read:

Jessica's got to connect to win, says "Idol" mentor Iovine
May 21, 2012

"Battleship" bomb may hit studio's profits: analysts
May 20, 2012

McDonald's Vandalized: Onions on Burgers Send TN Men on McRampage
May 22, 2012

Google's Schmidt challenges: no screen time for 1 hour a day
May 20, 2012

Facebook shares sink 11 percent as reality overtakes hype
May 22, 2012

Videos you may like:

by Taboola

Sponsored links

Mitt Romney for President Famous "spike through brain" case yields new insi… This election is about restoring American
Tue, May 22 2012

greatness. Donate Today.

China's lust for skyscrapers
Tue, May 08 2012

Gold Could Hit $10,000/oz
What Are The Banks Trying To Hide? Download This Free Secret Report.

World focus shifting from value of yuan: OECD
Tue, Mar 20 2012

Warning:Top Annuity Flaw*
Don't Buy An Annuity Until You... Watch This Special Video Report!

converted by Web2PDFConvert.com

From around the web:
“I wish I were wrong” – Economist Laments 2013 Prediction (Moneynews) 8 little-known facts about your credit card (Bankrate) The Best Way to Manage Your Finances Online (NetBanker)

Add your comment

Post to Facebook

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Comments (149)
Harry079 wrote: “the U.S. Treasury Department has given the People’s Bank of China a direct computer link to its auction system” “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.” Lord please forgive them for they know not what they do.
May 21, 2012 2:55pm EDT -- Report as abuse

bobber1956 wrote: I sure hope Congress intervenes here and FAST! This sounds illegal about 10 different ways to me. I would not be surprised to see a few banks filling suite over this either-I hope. A communist country having direct access of any kind to our Treasury, not good.
May 21, 2012 3:26pm EDT -- Report as abuse

dingodoggie wrote: And soon the Chinese will get a ball pen for every 10 bonds they buy, and a baseball cap for every 100. If this special treatment is needed to keep them buying, then good night.
May 21, 2012 3:28pm EDT -- Report as abuse

See All Comments »
Ads by Marchex Today's Top Stock Picks Latest Market Info, Industry News & More - Get Free Alerts Now! www.OTCStockPick.com Get a FREE Risk Management Guide today! With your guide you’ll also receive personal advice from an experienced broker! www.rjofutures.com New Wind Tech Launches Low Cost Electric Mass Megawatts Wind (stock ticker MMMW) launches product to lower electric cost www.massmegawatts.com APMEX® - Where Investors Buy Gold Buy Gold & Other Precious Metals Online. Over 5,000 Products Available 24/7! www.APMEX.com

Add Your Comment

converted by Web2PDFConvert.com

New home sales, prices rise in April
WASHINGTON - New single-family home sales rose more than expected in April and prices pushed higher, further evidence the housing market was turning the corner.



US Indices

With Mubarak gone, Egyptians vote freely for leader
CAIRO - Egyptians relished their first free leadership vote on Wednesday, with Islamists pitted against secular figures in a contest unthinkable before a popular revolt swept President Hosni Mubarak from power 15 months ago. | Video Pakistani doctor jailed for helping CIA find bin Laden Big powers, Iran meet in Baghdad to ease nuclear standoff | » More Top News » More Top Videos


12,360.71 -1.14%

The Exchange: Defending Income Inequality


2,811.91 -0.96% S&P 500

Market Pulse: Euro on ropes ahead of MerkelHollande bout

1,306.32 -0.78%

MOST POPULAR Facebook advised analysts to cut forecasts before float Wall Street struggles to find Facebook's worth SEC, FINRA to review Facebook issues, Nasdaq sued



An American intervention gone partly right
By David Rohde


118.13 -1.05%
Int'l Indices

Exclusive: Massachusetts subpoenas Morgan Stanley for Facebook Bloomsbury profits boosted by e-book boom Regulators, investors turn up heat over Facebook IPO |

Bosnia offers lessons for American officials as they wrestle with violence in Syria, volatile post-Arab Spring transitions and Afghanistan. Stopping the killing proved easier than expected, but halting corruption and sparking growth proved vastly more difficult. Commentary Davis: Our Afghan strategy has failed » More Analysis & Opinion

NIKKEI 8,556.60

Editor's Choice
Our best photos from last 24 hours. View Slideshow

HANG SENG 18,786.19
» Markets


Back to top

Reuters.com Legal Support & Contact Account Information Connect with Reuters About

Business Markets World Politics Technology Opinion Money Pictures Videos Site Index Bankruptcy Law California Legal New York Legal Securities Law

Support Corrections Register Sign In Twitter Facebook LinkedIn RSS Podcast Newsletters Mobile

Privacy Policy Terms of Use

AdChoices Copyright

Thomsonreuters.com About Thomson Reuters Our Flagship financial information platform incorporating Reuters Insider An ultra-low latency infrastructure for electronic trading and data distribution A connected approach to governance, risk and compliance Our next generation legal research platform Our global tax workstation Investor Relations Careers Contact Us

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

Login or register

Latest from My Wire

converted by Web2PDFConvert.com

Sign up to vote on this title
UsefulNot useful