Quote:
Originally posted by turbo6bar
The 10 yr treasury bond reflects a risk-free yield. The Chinese can buy 10 yr treasury bonds and get 4.8%, or they can buy mortgage-backed securities at say 5.15% from Fannie Mae. If the 10 yr treasury bond goes up, then the Chinese will say,"Why would I buy your mortgage securities yielding 5.15%, when I can buy the 10 yr treasury bond (with the full guarantee of the US government) at say 5.0%?" Conversely, if the 10 yr treasury bond goes down, the Chinese have to accept a lower yield on the MBS.
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Is the Chinese really investing in the U.S. economy? I thought that their investment partner in this country was Wally Mart.