Posted on 03/27/2008 6:51:34 AM PDT by TigerLikesRooster
S Korea pension fund shuns US debt
By Song Jung-a in Seoul, Andrew Wood in Hong Kong and Michael MacKenzie in New York
Published: March 26 2008 19:39 | Last updated: March 26 2008 19:39
The world’s fifth-largest pension fund will no longer buy US Treasuries because yields are too low. The move signals what could be a big shift by financial institutions away from US government debt into higher-yielding assets.
South Korea’s National Pension Service, which has $220bn in assets, said on Wednesday it wanted to broaden its range of overseas investments.
“It is difficult to buy more US Treasuries because the portion of our Treasury investment is already too big and Treasury yields have fallen a lot,” said Kwag Dae-hwan, head of global investments at the NPS. “We need to diversify our portfolio away from US Treasuries and we find asset-backed securities and corporate debt more attractive because of wider credit spreads.”
The yield on two-year US securities was 1.77 per cent in Asian trading on Wednesday, well below yields of 5 per cent in June. The rate recently fell below 1.5 per cent after several interest rate cuts by the US Federal Reserve.
Investors seeking safe haven assets have also driven Treasury yields sharply lower, with three-month Treasury bills recently near 0.5 per cent.
The NPS holds about $14bn of US government debt, a small amount compared with the overall $4,500bn Treasury market.
The pension fund has $24bn in overseas assets with $7.2bn in foreign equities. But it plans to diversify its portfolio and boost returns because it faces a shortfall in funds due to the country’s ageing population.
A manager at the NPS’s overseas investment team said: “The Fed continues to cut interest rates. We are still making profits from the Treasuries that we bought in the past but we think we’d better dispose of them and had better buy higher-yielding European-government debt.”
Central banks from 16 Asian countries said last weekend at a meeting in Jakarta that they might invest more of their $1,000bn of official reserves in one another’s sovereign bonds instead of US Treasuries, given the dollar’s volatility.
“[The Korean decision] is symptomatic of the times and the problems that the US is facing,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore.
“This is the sort of pressure the US is facing after running this big current account deficit for years. Lots of people have said it’s unsustainable.”
Ping!
Foreign Investors say: Cash is king but avoid anything green.
And that’s why interest rates will be rising precipitously very soon. There’s no one left other than American citizens looking for some safety for their capital, who wants to invest in this country.
Well, gee. I guess we had better stop deficit spending then, hadn’t we?
I’m not buying ‘em either.
China is starting to look askance at the basket cases in the US stock market:
“Chinese banks, widely considered as possible buyers of more U.S. financial assets amid the snowballing credit crisis, are becoming picky and cautious due to increasing concerns about investment risks.
“After China’s state-controlled CITIC Securities (600030.SS: Quote, Profile, Research) narrowly avoided taking a bath on a proposed investment in the ailing Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research), the Chinese government is insisting that any major foreign investment by state entities gets approval from the cabinet before a final deal can be reached, according to sources with direct knowledge of the situation.”
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN2633332520080327
That’s gonna put the lie to the eternal claims/hopes of “foreign investor demand” we hear all time whether the stock market is up or down.
The folks holding large amounts of dollars are in a pinch. Do they invest them in treasuries at rates that are below the inflation rate, or do they put them into more volatile investments such as the stock market/ U.S. companies/ assets, or do they sell the dollars at fire sale prices? Sounds like this group has chosen the latter.
It’ll be interesting to see whether other major holders of U.S. dollars decide to cut their losses. I personally don’t think that “most” will do that anytime soon; greed is too strong a motivator, and there are plenty of U.S. assets and industries that would be a relatively good deal right now. But it’s also notable that some holders of U.S. currency are signalling that they’re not going to idly stand by and hold their dollars while the Fed fiddles.
Where will they go next, Tiger, now that the US economy is going into the dumper?
Isn’t higher yielding debt what got these sorts of funds into trouble anyway, buying “AAA’ rated mortgage paper?
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