Asia, Europe to ‘Stick It Out’ With Treasuries

China's Finance Minister Xie Xuren

China's Finance Minister Xie Xuren (source: Bloomberg)

As reported by Bloomberg’s Christopher Anstey and Shamim Adam, Asian states are likely to retain their U.S. Treasury holdings for now and European governments expressed confidence in the world’s largest economy after Standard & Poor’s cut the U.S.’s sovereign credit rating to AA+.

Russia said the one-step cut “can be ignored” and France joined the U.S. in questioning S&P’s reasoning. South Korea affirmed its “faith” in Treasuries after an emergency meeting of officials today in Gwacheon, south of Seoul. China’s official Xinhua news service said in a commentary that the U.S. must cure its “addiction” to borrowing.

For all the angst, policy makers across Asia are lured to Treasuries as a result of efforts to stem gains in their currencies against the dollar, which would impair export competitiveness.

“They won’t be happy about it, but Asian central banks will just have to hold on and stick it out,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “There is pressure on them to hold on to liquid assets and there is nothing more liquid than the Treasury market. At least Treasuries have been doing well and they aren’t holding on to distressed assets.”

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