The Chinese government has long been one of the biggest buyers of U.S. treasury bonds, and this has fueled all sorts of speculation about how the world’s largest nation was going to take over the United States. This isn’t how treasuries work at all, and this fear is unfounded, although if the U.S. government were to default on their bonds, there could be some major issues. Luckily, there is a zero percent chance of this happening.
However, recent data shows that China is backing away from buying treasuries. This could be a cause for alarm for many investors. China is the largest creditor to the United States right now. Of the $13+ trillion in deficit money that the U.S. has right now, China holds the largest portion of it, mostly in the form of treasuries. For China to slow down their buying of debt means that the U.S. may not have as much working capital. A slowdown in lending means that the economy will not be growing at the same rate that it has been. This is to be expected, and perhaps part of the reason why the Federal Reserve was so slow in raising rates. Most of China’s debt purchases took place after the financial crisis, and now that they are slowing down, many investors are beginning to panic.
But, this isn’t the right approach, especially for short term traders. One, there is the potential for creating a profit regardless of which way the market is moving, especially if you are using low cost trading tools like binary options or a Forex brokerage account. The big reason, though, why there’s no reason to worry about a slowdown of Chinese purchases is the fact that it’s unlikely to have any sort of legitimate impact on the U.S. economy.
Not only is China purchasing less debt; they are selling off what they do have with the hopes of building up their economy to a safe level once again. That’s a good thing as the Chinese economy is in a very bad place and this is a measure that will act as a sort of economic stimulus to the struggling nation. It’s money that can be reinvested into the economy, giving Chinese stocks and indices, namely the Shanghai Composite Index, a little jolt upward. If this can catch on, it could take what looks like it will soon be a depression, and turn it into just a bad, yet quickly resolved, recession. The global economy as a whole will benefit greatly from this turn of events, especially the U.S. economy.
There’s no doubt that there might be a short term impact here. Treasury yields for 10 year notes have already dropped to 2.18 percent, after finishing 2015 at 2.27 percent. This will be purely reactionary, though, and once it’s passed, business as usual will resume. That’s good news for the U.S. economy, and for traders and investors alike, long positions will likely be the dominant trend, across the board. Regardless of your trading methods of choice, being aware of both the long and short term prognosis is the best way to maintain profitable levels of trading as this straightens itself out. While this data might seem like mumbo jumbo and completely irrelevant if you’re a short term trader, this knowledge will help you to keep a better pulse on what’s going on at the macro level, and allow you to formulate a smarter and more profitable strategy for your micro level trades. For those that bounce around from asset to asset, such as what’s popular among many binary options traders, this is a simple way to see the big picture all at a single glance.