China US Treasury Sell-Off Possible In 2020
The China US Treasury relationship cannot be ignored when covering any type of financial market. This is not a gloom and doom prediction. The China US Treasury holdings are easily tracked due to the US Treasury’s foreign holders page.
One needs to pay attention to the macro-economy instead of just looking at insurance and rating bureau calculations and estimates.
China did have a previous banking crisis that is still in effect today.
China has dumped 24 billion in Treasury notes in the last year. That is only a 1.5 % shift. That was not too alarming. Japan also sold off the same % of Treasury holding over the last year.
This Wall Street Journal article from yesterday caught my attention (wow-factor). The chart is astounding from a very well written article. As the article points out
“To contain the selloff, the Peoples Bank Of China has been buying yuan and selling dollars to prevent the yuan from weakening beyond around 6.40 per dollar, according to the people.”
A very important point in the article –
The 10-year yield settled at 2.061% Wednesday, compared with 2.173% at the end of 2014 and 3.03% at the end of 2013. Yields fall as prices rise.
Another internal pressure is the Fed Rate increase- 64% of economists surveyed say there will be an increase by the Fed in December. Another upwards price pressure to make yields fall.
Insurance carriers, self-insured groups, and even captives (onshore or offshore) have to find the safest yield for a return on investment. Treasury bonds, notes, etc. are among the safest on the planet. They are the good-sleep-at-night investments.
When core investment yields fall the difference must be made up somewhere – ergo- premiums. A market hardening may not occur whatsoever. Then again, more than one major variable (foreign investment + Fed Rate) are two figures to keep track of in your WC and insurance jobs. Employers should look at this figure for many reasons including future WC insurance rates.
Will the China US Treasury relationship cause an increase in Workers Comp premiums? No, not that one variable would cause an increase, however, it is one of a few that would cause a shift in US yields.
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