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March 29, 2008

Ban on US Treasuries and the falling dollar

Just when the dollar showed some signs of recovery, it was hit by a South Korean bomb. The dollar’s vulnerability was highly underscored by the announcement of South Korean’s National Pension Fund that would no longer buy US treasuries as yields were too low.

The Fund also announced that it is now looking to diversify its holdings, without giving any more information. The fund has almost $220 billion in assets. Analysts said that this kind of news support current sentiment of further weakness expected in the USD.

However, the Financial Times reported that the fund holds around $14 billion in U.S. government debt, which amounts to a small percentage of the $4.5 trillion overall Treasury market.

I guess it’s down to the investors now to decide who is right and who is wrong.

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