Asian central banks sound relatively calm in their reactions to Standard & Poor's downgrade of the United States, which could be reassuring to markets when they open on Monday. Asian countries are among the biggest buyers of U.S. government bonds, with China alone holding nearly $1.2-trillion (U.S.) worth of securities.
According to Bloomberg News, South Korea has added the downgrade to its list of things to discuss at an emergency meeting on financial turmoil, Hong Kong's central bank said it would monitor the fallout from the downgrade and China's official Xinhua News Agency simply sniffed that the U.S. must cure its addiction to borrowing -- none of which sounds as though U.S. government bonds are about to be unloaded now that they no longer carry S&P's top-notch triple-A credit rating. Indeed, China's own Dagon Global Credit Co. already downgraded its own rating on U.S. debt on August 3, to A from A+ and with a negative outlook.
"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. in Sydney, in an interview with Bloomberg. "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."
This sentiment was echoed by Philippine central bank Governor Amando Tetangco, who noted that the U.S. market is still the most liquid and offers a better alternative to Europe, which is embroiled in a debt crisis. He said that many still view U.S. government bonds as "safe havens."
Meanwhile, Bloomberg also tapped the insight of an anonymous Japanese government official, who saw no problems with U.S. securities following the downgrade.
China and Japan, and other countries, have been big consumers of U.S. debt partly out of a desire to hold back the value of their currencies. By lining up as enthusiastic buyers, they have held back gains in the value of their own currencies to help keep their exports competitive. That impulse is not likely to shift anytime soon.
David Berman