Reuters reports:

Federal Reserve purchases of U.S. Treasuries have not produced a lasting drop in long-term yields, according to a study by the St Louis Federal Reserve…

The Fed shocked markets on March 18 with a $300 billion purchase program of longer dated U.S. Treasury bonds, which quickly reduced longer bond yields by about 50 basis points.

Here’s the funny part:

“The marked flattening of the yield curve associated with the (Fed’s) announcement has vanished. Instead, the yield curve has become more steeply sloped,” the study noted. It said it was not possible to single out what was driving up yields.

Duh, yields are going up because the purchasing power of the dollar is expected to fall with the FED’s announced monetization, er “quantitative easing”. But it’s not possible for the St. Louis FED to figure this out…

China has certainly figured it out.  They are staying in the short end of the yield curve… From China Daily:

Shen Minggao, chief economist with the business and financial magazine Caijing:

I doubt the US government’s ability to ensure the safety of China’s investment in Treasuries. At least for the present, Washington has nothing to assure us on.

What the US government can guarantee is avoiding credit risk – it will not default on its debt. But that cannot provide any shelter for investors to avoid inflation, the depreciation of the dollar or risks in liquidity. These pose major threats to China’s holdings of Treasuries with maturities longer than a year.