Spreads between ED dates reflect the rate increase expectations in the intervening period:
March-June: 46 bps
June-Sept: 41 bps
Sept-Dec: 25 bps
This suggests the market really does not except much pause until Sept. 20, Nov. 1. If one thought a pause was coming sooner, as at 8/9 or even 6/30, this is now priced as a winning trade. My concern about this trade is that the constant poor participation in auctions by FCBs, may be as important setting rates as Fed (we know how they operate, EZ) policy. If they throw in the towel, even ST rates can spike much higher, and regardless of an economic slowdown. That's the dark side of foreign vendor financing, you're at their whim, mercy, schedule, and agenda, and you really need about all of them on board now. What if one of them decides to buy something else, like say oil?
Guo was also quoted as saying China had too much forex reserves due to booming trade and heavy investment inflows.
"China's forex reserves have certainly exceeded a reasonable level," Guo was quoted as saying, adding he believed $500 billion was the right level. China's forex reserves were $610 billion at the end of 2004
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