A report in the Chinese media got me thinking.  There’s a definite pattern to China’s buying and selling of U.S., and European, government bonds (sovereign debt).

In the first three months of 2011 China sold off U.S. bonds.  Then, from April through July bought U.S. bonds.  In August China sold off U.S. bonds big time; $36.5 billion worth! Now they’re back to buying.

The U.S. bond sell offs happen when news of the performance of the U.S. economy is really bad, and Europe is looking better.  In August, the big sell off came when the credit rating for the U.S. got downgraded.  For the past few months the really bad economic news is coming from Europe countries, and China has been buying U.S. bonds big time.

China is playing a sovereign debt investment ping pong game.  The ball is their money, and the paddles are the United States and Europe.

The Chinese media even reports that the Chinese holding of foreign exchange reserves must be flexible and ever adjusting to market conditions.

But I wonder, which is coming first, the chicken or the egg?  I’ve also noticed that Chinese officials tend to lead European and U.S. officials into thinking China is about to make big strides towards bailing out their economies, then the Chinese back off.  So, from here on out it would be wise to watch the timing of offers of economic help, then backing off of those offers, with the buy ups and sells offs of U.S. and European bonds.